Lennar Corporation (NYSE:LEN) Q2 2019 Earnings Conference Call - Final Transcript

Jun 25, 2019 • 11:00 am ET


Lennar Corporation (NYSE:LEN) Q2 2019 Earnings Conference Call - Final Transcript


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Stuart Miller

results reflect the fact that the housing market strengthened throughout the second quarter, confirming and continuing the trend that we reported on our earnings call last quarter. We clearly saw traffic and sales continue to strengthen in the second quarter as the combination of lower interest rates, together with at least slower price appreciation and in some instances slightly lower prices has positively impacted affordability, and that together with low unemployment, wage growth, consumer confidence and economic growth drove the consumer to return to a more affordable housing market. And while the current market conditions would not be considered robust, they would be considered solid.

We believe that the housing market is generally running in the performance channel that is bounded on the downside by the production deficit that has persisted for the past decade and has kept housing supply constrained, while it is somewhat moderated on the upside by rising land and labor costs as well as affordability limit. Within this channel, the market is generally continuing to improve and we believe we'll continue to improve for the foreseeable future.

Although we reported gross margins at the lower end of our previous guidance, this reflects the greater than expected incentives used during the market slow down or pause to maintain volume and ensure that we achieve our 2019 closing targets between 50,000 and 51,000 homes, and we remain confident that we will achieve this target this year. We expect to see our margins improve steadily throughout the remainder of the year as prices remain stable and incentives continue to subside. Accordingly, we expect to generate strong cash flow for the remainder of 2019 and expect to continue to use excess cash flow to both pay down debt while opportunistically repurchasing stock.

We're well positioned to thrive in the solid market condition. We've continued to refine our land strategy to position ourselves for strong performance and the strengthening balance sheet. Rick's going to update further -- this further in his remarks and additionally, we have noted in -- as we've noted in prior calls, we continued to invest capital in technology initiatives that are redefining the future of both our company and our industry. We believe that our tech initiatives represent significant opportunity and upside for the company as we create efficiencies and internal operations, reduce our SG&A and reduce our cost structure.

In the second quarter, our SG&A continued its downward trend with a lowest second quarter level ever at 8.4%. We continue to be laser focused on progress on our technology adoptions and change management and this is being incrementally reflected in bottom line improvements while we enhance our customer experience and our customer interface. We're still at the very beginnings of opportunities that we envision as we're going to build an ever better and more efficient mousetrap.

Before I turn it over to Rick, Jon, and Diane, let me just say that we remain encouraged by both Lennar's position and market conditions for the remainder of the