Lennar 2Q16 Earnings Call Notes

Lennar’s (LEN) CEO Stuart Miller on Q2 2016 Results

Managing for margin now that recovery is mature

” we’ve noted in past quarter conference calls that given our now mature recovery, we have been and continue to carefully manage and limit our growth in order to grow the bottom line and to drive strong cash flow. We have moderated our top line growth targets to achieve a growth rate in the 7% to 10% range as we’ve redirected our management efforts towards maximizing our net operating margin.”

First time home purchasers have come back to the market more slowly than expected

“First time home purchasers have come back to the market more slowly than they have historically and more slowly than expected. While approximately 30% of our for sale homebuilding business continues to be geared to first-time home purchasers, our broader new household strategy has targeted the rental market as well.”

There’s a lot of heat in rental, we might see a little bit of softness but absorption will outstrip oversupply

“I think that we are starting to hear – everybody is starting to hear that there might be a little bit more heat in some of the rental markets. What I’ve heard articulated by one of the best and brightest in the rental market is that we’re probably coming to the later innings of a double header, the first game of a double header. We might see a little bit of softness for a period of time but it looks like and it feels like absorption is going to outstrip any kind of oversupply in fairly short order and we think that there’s a lot of run rate for the multifamily markets, for the rental markets going forward.”

Hard to produce at lower price points in CA

“California, in general though, it’s hard to produce homes at the lower price points because not only of land costs but also because of impact fees being as significant as they are. And so that tends to drive particularly, in Southern California, the Bay Area, a higher sales point. And at that higher sales price point, clearly, it’s hard to get significant momentum above, I think, the current levels.”

Seeing sustained interest from the Chinese buyer

“We are seeing a sustained interest, particularly in the Asian or Chinese buyer. We haven’t seen that fall off. So if you look at a place like Irvine, where it’s been very significant. We have good data at the Great Park. That’s remains very consistent and healthy, same thing in the Bay Area marketplace, so we’re seeing consistency there.”

Higher priced communities are dragging down Houston

” It’s really once you get above that $400,000 price point in the oil corridor, where sales are off and if you were to break out our business between our higher price and our lower price, what’s dragging Houston down is the higher price communities.”

Jon Jaffe

Overall strong sales in starter price points across geographies

Overall, we saw strong sales in different markets that tend to cover both starter price points and move up price points. For example, specifically, Northwest was strong across all segments. Southern California was strong, Southeast and Southwest Florida were strong, Charlotte and the Carolinas also strong, and Central Valley, which is a more affordable price point for California.

Houston was off the most

The place that was off the most was Houston. As you would expect, as we continue to see the effects of job loss there, and you see that also with our greatest increase in incentives in Houston, even though for the overall company, we’re flat.

Do see some lower demand in higher price points

” And clearly we do see some lower demand in the higher price points as compared to lower price points but, it’s generally it’s still a submarket driven.