Lennar Corporation (LEN)

F4Q2010 Earnings Conference Call

January 11, 2011 11:00 a.m. ET


David Collins – Controller

Stuart Miller – President and CEO

Bruce Gross – VP and CFO

Rick Beckwitt – EVP

Jon Jaffe – Chief Operating Officer

Jeff Krasnoff –Chief Executive Officer, Rialto


Ivy Zelman - Zelman & Associates

Jonathan Ellis – Merrill Lynch

Michael Rehaut – JP Morgan/Chase

Carl Reichardt – Wells Fargo Securities

David Goldberg – UBS

Josh Levin – Citigroup

Stephen East – Ticonderoga Securities

Jade Rahmani – KBW

Daniel Oppenheim – Credit Suisse



Thank you for standing by and welcome to Lennar's fourth quarter and year-end 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 is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Mr. David Collins 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 turn the conference call over to your host, Mr. Stuart Miller, President and CEO. Sir, you may begin.

Stuart Miller

Good morning. I'd like to thank everyone for joining us for our fourth quarter and 2010 year-end update. We're very pleased to announce our fourth quarter and year-end results. 2010 marks a very solid year of performance for our company against the backdrop of a very difficult, economic and homebuilding environment.

I'm joined this morning, as always, by Bruce Gross, our Chief Financial Officer; Diane Bessette, our Vice President and Treasurer; and David Collins, our Controller. Additionally, Jon Jaffe, our Chief Operating Officer, Rick Beckwitt, our Executive Vice President and Jeff Krasnoff, Chief Executive Officer of our Rialto segment are here and will be participating in our question-and-answer period.

I'm going to begin with some opening brief 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're going to open the phones to your questions. As always, I'd like to ask that in our Q&A period, everybody please limit to just one question and one follow-up so that we can be as fair as possible to all of the participants.

Okay. Our fourth quarter marks the end of what has been a complicated and difficult year in the housing market in general. The year started with signs of stabilization and high hopes that the stimulus plan of a tax credit together with historically low interest rates would help form a foundation on which the housing market might form a comeback. Unfortunately, as the tax credit expired it became clear that it had only pulled existing demand forward and the housing market slumped back into recession under the weight of shadow inventory and foreclosures.

Low interest rate to loan were not enough to sustain higher demand levels and overcome high unemployment, lower consumer confidence and the customer’s general inability to secure down payment funds. The housing recession/depression that started some five years ago has left an indelible mark on the landscape of the housing market that will be with us for some time to come. We continue to believe that the housing recovery will traverse a long and bumpy road that will be inconsistent and uneven from submarket to submarket.

Shadow inventory and foreclosures will continue to impact individual markets on the supply side while the pace of recovery in the job market will influence consumer confidence and demand. We've some early signs of gradual stabilization in the market. MLS listings have declined in many of our markets and the foreclosure pipeline is measured by delinquency rates have trended down.

Against this rather difficult backdrop, we are very pleased that our Fourth quarter and year-end results represent a continuation of Lennar's return to profitability and represents solid operating performance in all areas of our company, even while market conditions have not improved.

Overall, net earnings were $32 million or $0.17 per share for the fourth quarter and $95 million or $0.51 per share for the year. All three segments, Homebuilding, Financial Services and Rialto, contributed to the company's profitability, and we continue to look to overall profitability for the full year of 2011. Perhaps most importantly, asides from our return to profitability we had many significant operating accomplishments in 2010 that will afford us significant operating leverage when market conditions do ultimately begin to improve.

On the Homebuilding side, 2010 has been a year of basic blocking and tackling as we focused on maximizing operational efficiency in order to achieve profitability even in depressed market conditions. In every one of our divisions, we've created a new product that is desirable to today's market, while offering fewer plans and redesigning efficient plans that allow us to minimize cost. We have used this efficient design as a foundation to renegotiate cost and reduce our direct cost by an average of 25%, enabling us to achieve appropriate gross margins.

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