Lennar's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Lennar (LEN)

Q1 2012 Earnings Call

March 27, 2012 11:00 am ET


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


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



Thank you for standing by, and welcome to Lennar's First Quarter Earnings Conference Call. [Operator Instructions] Today's conference call 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 M. 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 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.

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