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Lennar Corporation F2Q10 (Qtr End 05/31/10) Earnings Call Transcript

Lennar Corporation F2Q10 (Qtr End 05/31/10) Earnings Call Transcript

Lennar Corporation (LEN)

F2Q10 (Qtr End 05/31/10) Earnings Call Transcript

June 24, 2010 11:00 am ET


Scott Shipley – Director, IR

Stuart Miller – President and CEO

Jeff Krasnoff – CEO, Rialto

Bruce Gross – VP and CFO

Rick Beckwitt – EVP


Allan [ph] – Zelman & Associates

Joshua Pollard – Goldman Sachs

Michael Rehaut – J.P. Morgan

Jay Chadbourn [ph] – Merrill Lynch

Adam Rudiger – Wells Fargo Securities

David Goldberg – UBS

Dan Oppenheim – Credit Suisse

Stephen East – Ticonderoga Securities

Jade Rahmani – KBW

TheStreet Recommends

Megan McGrath – Barclays



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Welcome to Lennar's second quarter earnings conference call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct the question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Scott Shipley, Director of Investor Relations, for the reading of the forward-looking statement.

Scott Shipley

Good morning. 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 the 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 now like to introduce your host, Mr. Stuart Miller, President and CEO. Sir, you may begin.

Stuart Miller

Great. Good morning. Thank you for joining us for our second quarter 2010 update. I'm joined this morning, as always, by Bruce Gross, our Chief Financial Officer; Diane Bessette, our Vice President and Treasurer; David Collins, our Controller. Additionally, we have Rick Beckwitt here, our Executive Vice President, who will be available to answer question; and, Jeff Krasnoff, the Chief Executive Officer of our Rialto segment.

Now 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 balance sheet and our joint ventures. And since we've just finished our quarterly operations review, I'm also going to share with you our views on our homebuilding operations as well. Then Jeff is going to comment on our Rialto segment positioning for 2010 and beyond. And finally, Bruce will provide additional detail on our numbers. And then, of course, we'll open the phones to your questions. And as always, I'd like to request that in our Q&A period, everyone please limit to just one question and one follow-up so that we can be as fair as possible to all of the participants.

So let me begin and make just a few overview comments about the market and about our second quarter. To begin, let me say that we're very pleased that our second quarter results represent a fundamental return to profitability for Lennar, with earnings per share of $0.21 versus a loss of $0.76 last year.

We posted solid operating performance from our homebuilding segment, our financial services arm, and we saw our first profits from our newly formed Rialto segment. And at the same time, we saw valuation adjustments or impairments substantially reduced from just under $100 million at second quarter last year to $6.1 million this year. Accordingly, we remain confident that we will be profitable in 2010. But while we feel comfortable that we positioned the company for current market conditions, we realized that the greater focus of the investor community is on questions concerning the road ahead.

In my remarks in last quarter's conference call, I noted that the recovery in housing is not presenting itself as a V-shaped return to better time. But instead, it's proving to be a rocky, stabilizing bottom, with visibility obscured by more questions than clear answers. At that time, while the housing market seemed more stabilized than today, we knew and expected that the end of the $8,000 tax credit in April, that it kick-started the housing market back to life would draw demand forward and leave a void that would have to be filled by free market forces driven by low affordable home prices and historically low interest rates. We knew at that time that this void would not feel good, and it doesn't.

Today's reality is that the new home market and housing in general still face serious headwinds from current economic and legislative conditions. Nevertheless, we are still confident that the housing market and the overall economy are continuing to stabilize and are generally in recovery.

With that said, the current reality is that the overhang of foreclosures and the prospect of additional delinquencies ahead continue to moderate this recovery as shadow inventory continues to be absorbed and even replenished. Unemployment and a generally sluggish economic bounce back combined to hold demand the traditionally low levels, while the reality of the pull-back driven by the elimination of legislative and fiscal incentives limit visibility and create pending uncertainties about the immediate future of the strength of the market. And finally, debates over whether inflation or deflation lies ahead and the impact of sovereign credit risks continue to add uncertainty to the view ahead.

Over the past couple of days, we at Lennar have carefully reviewed our operations with our regional and our division presidents. After careful review, we continued to be inclined to believe that the current pull-back in demand is temporary and the void left by the expiration of the tax credit will be filled in the upcoming months by purchasers looking to take advantage of historically low interest rates supporting the purchase of extremely well-priced homes.

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