Lennar Corporation recently announced its fiscal third-quarter results, indicating that lower-than-expected gross margins on home sales have had a significant impact on investor sentiment. Despite beating market estimates in terms of earnings and revenue, the company's gross margin on home sales fell to 22.5% for the quarter ending August, a decrease from 24.4% recorded in the same period a year prior.
This figure was notably 120 basis points below marketplace expectations and also missed Wedbush Securities' forecast by 50 basis points, as highlighted in a note distributed to clients on Friday. The primary factor attributed to this decline in gross margins was a reduction in revenues per square foot, alongside rising land costs compared to the previous year.
However, this setback was partially mitigated by a decrease in costs per square foot attributed to lower material costs. In terms of guidance for the ongoing quarter, Lennar anticipates that gross margins on home sales will remain steady when compared to the preceding three-month period. As per consensus estimates available on Capital IQ, the anticipation for this metric stands at 24.4%. In early trading hours, shares of Lennar experienced a decline of 3.7%, reflecting the market's concerns regarding the gross margin miss and lackluster future guidance.
Wedbush analysts expressed their belief that the stock's downward movement is a consequence of the unsatisfactory gross margin reported for the third quarter, coupled with the guidance offered by the company. Their unaltered model predicted a 130 basis point improvement for gross margins quarter-over-quarter in the fiscal fourth quarter, as they noted that market participants had expected a similar uplift due to the company's need to expand to fulfill its full-year guidance of approximately 23.3%. Moreover, RBC Capital Markets highlighted that their assessment of Lennar's outlook and third-quarter performance was disappointing, stating that growth appeared uninspiring, especially with projected new orders that aligned with market consensus.
The company expects to secure between 19,000 to 19,300 new home orders in the fourth quarter, forecasting an average sales price of around $425,000. They are estimating home deliveries in the range of 22,500 to 23,000 homes. Regarding financial results, Lennar reported third-quarter earnings of $4.26 per share, a rise from $3.87 reported in the same quarter the previous year, and surpassed the Capital IQ consensus estimate which was pegged at $3.63.
Revenue figures soared to $9.42 billion from $8.73 billion year-on-year, exceeding expectations set by market analysts who had estimated revenues at $9.16 billion. In relation to the broader economic context, the Federal Reserve's decision earlier this week to lower interest rates is anticipated to enhance affordability, further propelling the robust demand currently observed for both new and existing homes.
Stuart Miller, co-Chief Executive Officer at Lennar, emphasized this point in the statement released late Thursday, noting that "Lower rates and controlled inflation will likely boost confidence within the housing market." In terms of homebuilding performance, Lennar's revenue increased by 9% year-over-year to reach $9.05 billion in the third quarter, supported by a 16% rise in home deliveries which reached a total of 21,516 homes.
The company also reported a 5% increase in new orders, amounting to 20,587 homes..