Lennar FY 1Q17 Earnings Call Notes

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Stuart Miller – CEO

Market conditions feel like they are strong and strengthening

“So let me go ahead and begin and start by saying that market conditions certainly feel like they are strong and strengthening. The slow and steady, though sometimes erratic, market improvement that we’ve seen for the entirety of this recovery seems to be giving way to a more definitive reversion to normal. While our first quarter operating results, particularly gross margins, reflect some of the sluggishness seen at the end of last year, our sales results went from tepid to better to strong as the quarter progressed. Limited supply and production deficits are now intersecting with land and labor shortage and this suggests, though not yet seen, but suggests, that pricing power is on the horizon as we move through the year.”

Customers are clear in their motivation

” As our traffic has increased, we’re getting some very direct feedback from our customers as they tell us what they are looking for, their timing and, sometimes, their motivation. There’s clearly a sense of general optimism in the market. There’s a perception that jobs are being created and that wages are actually starting to move upward. There’s a solidifying sense that the government has adopted a business-friendly posture and that will result in real changes to tax rates and to the regulatory environment. The banking world is making more overtures to small businesses and to mortgage borrowers and there’s a sense that borrowers can make their way through the process. Additionally, the upward direction of interest rates has encouraged some to get off the fence and consider purchasing a home rather than renting. Rents have risen and the prospect of higher purchase prices and higher interest rates makes a compelling case that today’s opportunity might be the best opportunity to leave those annual increases in monthly payments behind.”

60% of 18-35 year olds are living with parents, relatives and roommates

” Interestingly, the front page of U.S.A Today reports today that 60% of millennials ages 18 to 35 are living with parents, relatives and roommates and that is a 115-year high.”

Construction costs have risen in CA

“I think that as we think about our numbers, construction costs as a percentage of our sales price has probably moved up around 100 basis points and there’s most certainly pressure on construction costs in the labor constrained market ”

Mnuchin well aware that there will be winners and losers in a tax revamp

” I will say that I’ve had a recent opportunity to listen to Steve Mnuchin, the Treasury Secretary, who seems to be in a lead position there. And the two things that I take away from listening to him is that he’s very smart, very thoughtful in his approach and I frankly derived a lot of confidence listening to him walk through the thinking. The other thing that I walked away with is a sense that he and this administration are listening carefully knowing that there will be winners and losers, there will be ups and downs, in any configuration of the tax revamp and so there is, virtually, no ability to draw certainty today from what pieces and in what proportion they are going to be woven into a new tax program. ”

Houston a bit of a pickup

“I think some of that is driven by the impact of still, a little bit of sluggishness in Houston, but with regard to Houston, we have seen a pick up. We’re starting to see a little of an increase in rig count and we still have a divergence in sales pace between the higher priced and the lower priced ones. So, Houston was a little soft, but it looks like it’s, the picture is getting a little brighter there as we move through the year.”