Supply Chain Issues Take Bite Out Of Lennar’s Q4

Lennar Guides Weak With Supply Chain In Focus 

Lennar NYSE: LEN had a great quarter but we have one of those situations in which results were uninspiring and reveal the rot of inflation and systemic headwinds. The company produced high double-digit YOY growth and record results but they could have been even better if not for labor and materials shortfalls and rising costs. Worse, the guidance for next year suggests activity will continue to be constrained by headwinds producing weaker than expected margins and pressuring the company’s revenue and earnings growth. 

The takeaway is that demand is still strong, shortages of homes persist, and the supply chain issues will eventually get resolved the only question is when. In our view, this is an opportunity for the company to outperform its own guidance and guide the market higher at some point in the next two to three quarters. 

"Our record fourth quarter results reflect both continued strength in the housing market across the country, and continued housing supply shortage driven by limited entitled land, labor and supply chain constraints, and 10 years of production shortfall,” says executive chairman Stuart Miller. 

Lennar Falls On Lackluster Results And Guidance 

Lennar reported $8.43 billion in revenue for a gain of 23.4% versus last year and a 20.9% increase versus 2019. The gains are fantastic but fell short of the consensus by 90 basis points and are compounded by the weak guidance. The company says deliveries are up 11% and boosted by a 14% increase in selling price. New orders are up a smaller 2% reflecting the impact of those higher selling prices as the value of new orders increased by a much larger 16%. Backlogs are up 26% on a volume basis and 45% on a value basis pointing to continued strength if subdued by labor and materials. 

Moving down the report, the company was able to wind the gross margin per house by 300 basis points and leverage sales strength to the tune of 150 basis points. This resulted in wider than expected margins on an adjusted basis but 50 to 100 bps of shrinkage is expected over the next year. On the bottom line, the GAAP $3.91 is up 39% from last year but missed the consensus by $0.23 while the adjusted $4.36 beat by $0.21. 

Turning to the guidance, the company is expecting to deliver more than 67,000 homes and revenue of $30.8 billion for YOY growth of 13%. This is a tick higher than the 12% increase in deliveries produced this year and might be aggressive in light of labor issues and other headwinds. The Marketbeat.com consensus estimate is expecting a little more than 18% growth providing another headwind for the market. Based on the guidance, the company will have to hike prices another 6% to make up the difference and price increases are already hurting demand. 

The Technical Outlook: Lennar At Risk Of 20% Correction

Shares of Lennar reached a new high the week before earnings were released and began pulling back even before the news hit the market. Now, down another 5% in early trading, it looks like this stock could correct 20% or more before hitting a firm support level. There are some near-term supports between current action and the $94 mark but we don’t see them holding up with the guidance as weak as it is. If the stock breaks below $94 a move down to the $80 level is very possible. Our targets for nearer-term support are at $104 and $100.