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Lennar Corporation (LEN)

F3Q2010 Earnings Call Transcript

September 20, 2010 11:00 am ET


David Collins – Controller

Stuart Miller – President and CEO

Bruce Gross – VP and CFO

Rick Beckwitt – EVP


Joshua Pollard – Goldman Sachs

Jonathan Ellis – Merrill Lynch

Carl Reichardt – Wells Fargo Securities

Susan Maklari – UBS

Michael Rehaut – JP Morgan

Josh Levin – Citigroup

Jade Rahmani – KBW

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Daniel Oppenheim – Credit Suisse

Nishu Sood – Deutsche Bank

Stephen East – Ticonderoga Securities



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Thank you for standing by and welcome to Lennar's third quarter earnings conference call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Today's conference call is being recorded. If you have any objections, please disconnect at this time. I will now turn the call over to David Collins, Controller, for the reading of the forward-looking statement.

David Collins

Today's conference call may include forward-looking statements that are subject to risks and uncertainties relating to Lennar's future business and financial performance. These forward-looking statements may include statements regarding Lennar's business, financial condition, results of operations, cash flows, strategies, and prospects. Forward-looking statements represent only Lennar's estimates on the date of this conference call and are not intended to give any assurance as to actual future results.

Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could cause Lennar's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described under the caption Risk Factors contained in Lennar's annual report on Form 10-K most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements.


I would like to introduce your speaker for today’s call, Mr. Stuart Miller, President and CEO. Mr. Miller, you may begin.

Stuart Miller

Great. Thank you.

And nice reading, David.

David Collins

Thank you.

Stuart Miller

Good morning, everyone, and thanks for joining us for our third quarter 2010 update. I'm joined this morning, as always, by Bruce Gross, our Chief Financial Officer; Diane Bessette, our Vice President and Treasurer; and of course, David Collins who you just heard from. Additionally, Rick Beckwitt, our Executive Vice President, is on an open line from Dallas and will be participating in our question-and-answer period. Jon Jaffe, our Chief Operating Officer, and Jeff Krasnoff, Chief Executive Officer of Rialto, will not be joining us on this call this quarter.

I'm going to begin with some opening remarks about the current housing market in general and the progress that we've made on managing our business. And Bruce will provide additional detail on our numbers. And then, of course, we will open the phone line to your questions. As always, I'd like to request that in our Q&A period, that everyone please limit to just one question and one follow-up so that we can be as fair as possible to all participants.

So let me begin by making a few overview comments about the market in general and our third quarter results specifically. Our third quarter marks the end of what has been by all accounts a long and difficult summer quarter in the housing market. And against this rather difficult backdrop, we are very pleased that our third quarter results represent a continuation of Lennar’s return to profitability and represent very solid operating performance in all areas of our company.

Overall, net earnings were $30 million or $0.16 per share compared with a $171.6 million loss or $0.97 per share loss last year. All three segments, Homebuilding, Financial Services and Rialto, contributed to this quarter’s profitability, and we continue to look to overall profitability for full year 2010.

While we believe that we’ve properly positioned the company with market conditions as they continue to evolve, we remain cautious about the immediate future as there continue to be more questions than answers as to where we will go from here. It has been widely reported and confirmed in the existing and new home sales numbers, which are both at historic lows, that the end of the homebuyer tax credit at the end of April has been far more impactful than originally anticipated.

New and existing homes have fallen precipitously while fundamentals driving the overall economy have shown little, if any, signs of improvement. Unemployment remains high while the inventory of foreclosed homes and homes in default and potentially facing foreclosure has continued to rise. Consumer confidence has remained weak, as reported today.

While the mid-term elections drive rhetoric of blame for the current predicament and the press continues to question whether the end of the homeownership era is upon us. For the time being, the entire homeownership edifice has been vilified. On the other hand, the elections will be behind us soon, and affordability is excellent with low mortgage rates and bargain home prices in almost every market in every price range.

For those who can afford a down payment and have credit, now is an excellent time to purchase a home for long-term stability and we are beginning to see increased traffic in many of our communities. Additionally, national inventory levels of combined new and existing homes have improved slightly, although they remain above where they need to be, given the current absorption pace.

New home inventories remained very low in most markets, as new homes are being built to order by most builders. Existing home inventories continue to clear albeit slowly. Perhaps most importantly, while the national numbers of existing home stock continue to be replenished by foreclosures, relevant inventory, that is inventory in the most desirable areas of the most desirable markets is being absorbed more quickly and creating micro markets where there are discernible improvements.

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