Lennar Corporation (NYSE:LEN) Q3 2020 Earnings Conference Call - Final Transcript

Sep 15, 2020 • 11:00 am ET


Lennar Corporation (NYSE:LEN) Q3 2020 Earnings Conference Call - Final Transcript


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Stuart Miller

sales could have been stronger with a singular focus on volume, but instead, we drove margin growth and cash flow, while allowing price appreciation to cover cost escalation in the future.

As I've noted in prior calls, it is challenging at best to materially ramp production in this labor-constrained market and it's even more challenging to replace entitled land in this land constrained market. Therefore, our measured growth strategy produces sustainably high margins, higher inventory turns and the best return on our assets. Accordingly, while managing sales pace, our margins have grown as demand has grown and supply has remained limited. Our 23.1% gross margin and 15.1% net margin represent strong pricing power in the market and careful day-to-day oversight by our Management Team. We're expecting historically strong margins for the foreseeable future and throughout 2021, and we expect our bottom line to grow faster than our top line.

As expected, our closings in the third quarter were limited by the production pause we took in March, April and May, as we assess the impact of COVID on the housing market. We increased starts and production as the market recovered, so production and deliveries will normalize as we move into 2021. Alongside the homebuilder, Lennar Financial Services continued its focus, attention to technology enabled efficiencies.

LFS's pre-tax contribution this quarter was $135 million as compared to $95 million last quarter, excluding a one-time profit realized from states title, which represents a 50% sequential increase. With the market this robust, the dominant questions for both Lennar and the industry are how will we continue to meet demand to grow land positions and manage labor, materials and particularly lumber costs. These are the questions that have the undivided attention of our Management Team right now and we're very confident that we'll be able to meet demand, drive high margins and cash flow, while we continue to grow with the market.

For the short-term, we are already extremely well-positioned to manage costs and meet demand, while we're selling through community somewhat faster than expected, we are well fortified with strong land positions that will be brought online. And while lumber, in particular and other costs are rising, we are actively managing sales pace, primarily to started homes in order to manage that cost risk.

For the intermediate term, we are and have been accelerating starts and production of homes under construction, while also accelerating the readiness of new communities that we control wherever possible. And for the longer term, we are focused on ramping up our land purchases for new communities, as we believe the industry will have a sustained expansion for the foreseeable future. With historically low interest rates and the production deficit that has defined homebuilding from the past decade together with the limited inventory and short supply in the market, housing and especially affordable housing is and will continue to be an an essential driver of the economy.

As we grow offerings for the future, we've remained focused on our