Lennar Corporation (NYSE:LEN) Q3 2020 Earnings Conference Call - Final Transcript
Sep 15, 2020 • 11:00 am ET
the development during COVID, it slowed down some of our newer communities from opening. So as you highlighted, community count is dipping in Q4. But as I said, in 2021, you'll see a rebuild of that.
Okay, understood. Thanks for that color. And then I wanted to ask a question on the gross margin as well, I guess, a little bit of a higher level. So exiting 2020 over 23%, as you guided, it looks like Lennar pre-CalAtlantic, we haven't seen a level like that perhaps since 2016. So putting kind of that lumber volatility aside, should we be thinking that structurally Lennar gross margins can sustain at these type of levels? Or should we kind of understand that if there's any near-term pricing power or mix that's in there and we perhaps shouldn't get too carried away with assuming that persists? Thank you.
No, I think that's what we spotlighted in our opening remarks, is that we expect gross margins to be towards the higher levels for the foreseeable future. We say that given the backlog that we have and the expectations for how we will manage the business going forward, recognizing that there is an automatic caveat for where costs actually go and how aggressively they move, that will be in part determined by how quickly the industry moves to ramp up production. And so we have to leave that out there as a question mark. But I think that if you look at where Lennar is situated and how we see the future, you can expect that our margins are going to be migrating towards the higher side, and as we said, for the foreseeable future. Why don't we take one more question?
Thank you. Next, we have Jack Micenko from SIG. Your line is open.
Hi. Thanks for fitting me in. And I guess I'll wrap it up with one bigger picture questions since most of might have asked. Stuart, 4Q 2018, I think the industry and collectively, most of us on the call are surprised at how quickly the new home demand market decelerated when rates moved up. And certainly, no one's thinking about that now, although there is some conversation about in place and coming back in. I'm curious how you think about this strategy shift in light of the risk there. Is it -- are you comfortable that being smaller than -- or sort of reining in the growth is somewhat defensive? How quickly operationally can you change direction if we see a spike in the 10 year? And just general thoughts around how to manage that, because you're clearly going and pushing price, curious how do you think about that as a risk scenario?
Yes. It would be easy to look at this as defensive positioning, but that's not at the root of our strategy. We've daylighted pretty consistently over the past quarters that our strategy is to manage our growth rate to focus on cash flow and returns and to deploy