Lennar FY 3Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Housing recovery has not accelerated

“Generally speaking, the market has continued a slow and steady recovery that is markedly different from past down cycle recoveries. History would suggest a more vertical recovery especially given the severity of the economic decline. This recovery has been a decidedly different experience as the slope of recovery has been shallow and the expected acceleration has not materialized.”

Before this downturn 1m housing starts would have been considered a housing depression

“Before this downturn, anything below 1 million housing starts in a year was considered almost a housing depression. This recovery is just now getting us back to that level of starts. We’re still adding to a deficit in production given the housing needs of the country and that in our opinion limits the downside for the recovery going forward.”

Labor and materials cost $49/sqft

“Year-over-year, labor and material costs are up 8.5% to around $49 per square foot. This represents a mild slowing of the pace of cost increases as last quarter, cost were up more than 9% over the year.”

Sales are up and down but definitely on an upward trend

“I’d just say, Michael, I think that what we’ve been seeing is that the market is tending to move a little bit around; a little bit up, a little bit down. You get that sense on a weekly basis and on a monthly basis. But the trend line is decidedly upward and as I’ve said – I probably said it three times in my remarks, it’s a gentle upward slope and you’ve got upward and downward movement around that kind of direction. And I think that’s what we’re seeing basically in our sales as we go through the months and through the weeks.’

I hold the competition in high regard

“I think you know well that I hold the competitive landscape in very high regard and I think that everybody’s – the large well capitalized builders, the strategies of the competitive field are all strong and viable and somewhat differentiated.”

We did a good job acquiring land and we’re hands on

“Our strategy, which we’re quite pleased with, is very focused on a combination of good strategic land purchases and really hands-on community by community management. So as you know we got out ahead of the market in terms of land acquisition. We bought great strategic communities in really well located positions and we’ve been able to really leverage the harvesting of those communities, continue to leverage the community positions that we have. But I think that maybe the equally important component of this is our management structure and management team is very focused on a community by community basis of managing every day and the balance between volume, margin, SG&A spend, all of the components that drive and add to the decision making about pricing and incentives and everything else.”

First time home buyer at sun $175k price point

“We really view that first-time buyer as a sub 175, sub $200,000 price point. ..So we’ve been putting these positions together over the last year to really target that buyer. It’s a little bit tougher to get under 175, much, much tougher because of the land cost to get under 150, but we do view that as a very viable piece of the business. ”

the barriers are high for the first time buyer right now

” It’s still very difficult for that market to get reignited until we start to see a little bit more movement in terms of access to the mortgage market remembering that there are really three barriers to the first-time buyer coming back. First, it’s the down payment. Then it’s the very stiff underwriting and the bank overlays relative to accessing mortgage credit. And then finally the process itself has become fairly invasive, at least as far as people see the process and feel the process…So the process is almost designed to scare people away”

People are getting their credit ready to buy

“There has been some loosening of the credit underwriting at the margin, but it hasn’t been as significant as some has been reported. We stay very close to the customer in the field, we see who is coming in, we see what their commentary is. Remember that the rental market has accelerated in terms of its monthly payment requirement, it’s cost of living and that’s really driving people to say, I want to buy a home, I’d like to fix my cost, I’d like to find access to the mortgage market. So we’re watching what happens as they come in and staying very close to the purchaser in the field. Now with that said, the barriers are high and over time the market adjust to those barriers. People start saving, more down payment. They find a way; they get help from family. They start focusing on credit statistics as rental rates go up and they become more volatile because each year there is a re-pricing. People become ignited to get their credit credentials buffed and polished and ready for underwriting. They take a deep breath and they prepare themselves to go through the mortgage process. So you have two things kind of going in opposite directions. People are becoming more prepared and the mortgage market is opening up at the margins. And the only thing that we can really do is stay very close to the purchaser in the field, see what they’re seeing, feeling and finding as they try to access the new home market and use that as a guide post for really diving in and participating.”

Larger guys are picking up share

“I think there is a reality right now and that is the credit landscape is tight. It’s not just tight for the purchaser looking to gain access to the mortgage market but it’s also been very tight for smaller builders and for traditional land developers to get back in the market and to do the things that they do. So I think the larger, well-capitalized builders with access to the land market in a more comprehensive way have been able to pick up market share and that is something that seems like it’s continuing going forward.”