Lennar (LEN) Q1 2012 Earnings Call March 27, 2012 11:00 am ET Executives David M. Collins - Principal Accounting Officer and Controller Stuart A. Miller - Chief Executive Officer, Director and Member of Executive Committee Richard Beckwitt - President Jonathan M. Jaffe - Chief Operating Officer and Vice President Jeffrey P. Krasnoff - Former Chief Executive Officer, President, Director, Member of Executive Committee and Member of Stock Option Committee Bruce E. Gross - Chief Financial Officer and Vice President Analysts Ivy Lynne Zelman - Zelman & Associates, Research Division Stephen Kim - Barclays Capital, Research Division Michael Rehaut - JP Morgan Chase & Co, Research Division Stephen F. East - ISI Group Inc., Research Division Robert C. Wetenhall - RBC Capital Markets, LLC, Research Division David Goldberg - UBS Investment Bank, Research Division Jade J. Rahmani - Keefe, Bruyette, & Woods, Inc., Research Division Jack Micenko - Susquehanna Financial Group, LLLP, Research Division Adam Rudiger - Wells Fargo Securities, LLC, Research Division Megan McGrath - MKM Partners LLC, Research Division Daniel Oppenheim - Crédit Suisse AG, Research Division Presentation Operator
OperatorI would like to introduce your host, Mr. Stuart Miller, CEO. Sir, you may begin. Stuart A. Miller Okay, good. Thank you, and good morning, everyone. Welcome to our First Quarter 2012 Update. I'm joined here as always by Bruce Gross, our Chief Financial Officer; Diane Bessette, our Vice President and Treasurer; Dave Collins, our Controller. We also have Rick Beckwitt, our President; Jon Jaffe, Chief Operating Officer; and Jeff Krasnoff, CEO of Rialto. I'm going to give some overview remarks both on the economy and the housing market and on Lennar in particular, and then I'm going to turn it over to the management team to give additional background in detail. After we open the phone lines, as always, we'd like to ask that you limit your question to just one question, one follow-up please, so that we can be as fair as possible to all. So as I sit here today, I'm really pleased with our solid first quarter 2012 operating results, and what they represent relative to the housing market in general and to Lennar in particular. Our first quarter results reflect another quarter of confirmation that both the housing market and the overall economy are stabilizing, and that a very real trend is beginning to take shape. They also demonstrate that our operating team is executing extremely well in a complicated environment. I previewed in our third and fourth quarter conference calls that we were beginning to see evidence of a genuine turn in the residential housing market, and this could be a harbinger of market stability. Last quarter, I was feeling somewhat more confident that the market was, in fact, changing, and this quarter marks further evidence that stabilization is really taking hold. The consistent message is that the general environment is different now than it's been in the past many years. There are discernible fundamental shifts appearing in the home market, and there are empirical data points that are, to-date, confirming that the market is showing real signs of stability. With that said, and as we saw from last week's reported national sales starts and permits numbers, yesterday's pending home sales numbers and today's Case-Shiller Index, that the housing market is not yet in full recovery. In fact, the stabilization process after a full 7-year decline in housing is rocky and erratic and is certainly not yet broad based.
Let me tell you a little bit about how we are thinking about the things that we're seeing in the field versus the national numbers that are being reported. Four important themes are driving housing stabilization; 3 are demand-related and 1 is supply-related. First, today's consumer is looking at the home purchase differently than in the past years. The home purchase is no longer a place to invest savings in order to ride a wave of price increases. Instead, today's buyers are looking for real value. They are finding real value in for-sale housing. We know that home prices and volumes are low and interest rates are at historical lows and affordability is extremely high today. Today's consumers are beginning to realize that housing presents an undeniable value proposition, and we're hearing this from them in the field. Accordingly, we're experiencing more traffic in our welcome home centers and customers are actively discussing their desire to find a way to purchase and capitalize on this moment in time. They're starting to feel pressure not to miss this moment, and that's being reinforced by discussion with family and friends, buying and owning a home is no longer taboo at the dining room table. And in the field, we're witnessing instances where customers returning for a second visit are finding that the home that they wanted is sold.Second trend, today's housing consumers also seeking to avoid the rental market. The fully loaded cost of ownership is lower in most desirable markets than comparable rental rates. We've carefully studied this trend and have found that while this might not show up in national statistics, in local competitive markets, principal, interest, taxes, insurance, community association, lawn care are all together lower than the competitive rental market. Today, for-sale housing represents an excellent value proposition on a pure monthly payment basis versus renting.
Additionally, consumers are looking for an alternative to the annual repricing inherent in the rental market. Rental prices are high, and they've been moving up. Today's consumer is looking for living cost stability, as well as a safe and stable place to raise a family. They're looking to reconsider the rental lifestyle, where rental rates have been rising and are likely to continue to rise for the foreseeable future.Third trend, improvement in employment and consumer confidence has translated into the end of negative household formation. The trend of children moving home and elderly parents moving in with children is at least slowing and may be reversing. Over time, this trend will be an even more powerful driver of demand increases. Now some have suggested that the gains in the first part of the year might be weather-related, since it's been abnormally warm in the North. We, however, see strength across our platform, including warmer markets where weather is not a factor, and where warmth in the North might even be a negative to sales in the South. It seems that the improvements derive from fundamental shifts. Read the rest of this transcript for free on seekingalpha.com