Updated from 6:25 a.m. EST

Lennar's ( LEN) first-quarter sales and earnings both rose 35% from a year ago, beating estimates, and the homebuilder forecast full-year results that are roughly in line with Wall Street expectations.

Lennar earned $258.1 million, or $1.58 a share, in the quarter ended Feb. 28, compared with $193.2 million, or $1.17 a share, a year ago. Analysts were expecting earnings of $1.55 a share in the latest quarter. The company sees earnings of $9.25 a share this year based on a $7.1 billion backlog; the consensus estimate is $9.30 a share.

Overall sales were $3.24 billion in the quarter, up from $2.41 billion a year ago, while homebuilding sales rose to $3.11 billion from $2.29 billion. Analysts surveyed by Thomson First Call were expecting $3.07 billion for the latest quarter. The company booked 9,793 new orders in the quarter, up 4% from the year-ago period.

On its conference call, Lennar said it expects gross margins to drop 100 basis points in 2006 as increased incentives and broker commissions drive down home selling prices. Management said incentives in the first quarter averaged 4% of the company's average selling price for homes, up from 2.75% a year ago.

The company said more sales incentives are being offered in Northern Virginia, Minnesota, Illinois, Colorado and Nevada to move product. Parts of Arizona, such as Tucson, have seen reduced orders of late. Meanwhile, areas of Florida, the Carolinas, Texas and New Jersey have performed better and are seeing improving traffic and sales, and California remains a mixed market, Lennar said.

"While there has been a slower sales pace in certain markets in which we operate and price appreciation in these markets has moderated relative to the appreciation experienced in the past few years, we were still able to achieve a 4% increase in new orders during the first quarter," Lennar said.

Excluding Lennar's unconsolidated entities, new-home deliveries totaled 8,904 homes in the latest quarter, compared with 7,577 homes a year ago. Lennar said deliveries were higher in each of its regions, while the average sales price rose to $326,000 from $292,000 a year earlier.

Lennar shares rose 1.5% to $61.21 in afternoon trading, which is 6.6 times management's guidance for 2006 EPS.