Lennar Corporation (LEN) showed a profit of $27.4 million or 14 cents per share in the first quarter of fiscal 2011 compared with a loss of $6.5 million or 4 cents per share in the same quarter of prior fiscal year and the Zacks Consensus Estimate of a loss of 6 cents per share.

The improvement in results was mainly attributable to higher revenues generated from the company’s Rialto Investments segment. Rialto Investments is Lennar’s most recent venture that provides advisory services, due-diligence, workout strategies, ongoing asset management services, and acquires and monetizes distressed loans and securities portfolios. Total revenue in the quarter inched up 3% to $558 million.

Homebuilding

Revenues in the homebuilding segment declined 10% to $466.7 million. This was attributable to an 11% fall in home sales to $457.9 million on the back of a 7% decrease in average sales price to $240,000 and a 4% dip in new home deliveries (excluding unconsolidated entities) to 1,903 homes. Home deliveries decreased in all the segments, except East, while average sales price fell primarily in the company’s West segment.

New home orders went down 12% to 2,267 homes. Cancellation rate was 17% during the quarter. Backlog fell 12% to 1,948 homes.

The segment operating earnings increased to $18.9 million from $18.8 million a year ago driven by lower cost of homes sold and lower selling, general and administrative expenses.

Sales incentives offered to homebuyers reduced to $33,100 per home (12.1% of home sales revenues) from $37,100 per home (12.5% of home sales revenue) in the first quarter of last fiscal year.

Financial Services

Revenues in the Financial Services segment grew 8% to $57.7 million. The segment had operating earnings of $1.2 million in the quarter compared with an operating loss of $901,000 in the first quarter of fiscal 2010. The increase in profit was primarily attributable to higher profits per loan in the segment’s mortgage operations and reduced costs in the segment’s title operations.

Rialto Investments

Revenues in the segment rose significantly to $33.6 million (which consisted primarily of accretable interest income associated with the segment’s portfolio of real estate loans) from $301,000 in the same quarter of last year. Operating earnings were $23 million (which included $12 million of net earnings attributable to non-controlling interests), compared with an operating loss of $1 million in the same period last year.

Financial Position

Lennar had cash and cash equivalents of $1.01 billion as of February 28, 2011 compared with $732.4 million a year ago. Net debt amounted to $2.12 billion as of the above date, reflecting a debt to capitalization ratio of 44.5%.

Lennar Corporation, a Zacks #3 Rank (Hold) stock, engages in the construction and sale of single-family attached and detached homes, and to a lesser extent multi-level residential buildings, as well as the purchase, development and sale of residential land.

The homebuilder, based in Miami, Florida, serves customers in Florida, Maryland, New Jersey, Virginia, Arizona, Colorado, Texas, California, Nevada, Illinois, Minnesota, New York, North Carolina and South Carolina.

Despite the improved results, we continue to recommend the shares of Lennar as Neutral owing to lower orders and a drop in deliveries driven by higher cancellation rates.

Peer Performance        

Lennar performed well compared with D.R. Horton Inc. (DHI) and PulteGroup Inc. (PHM) in the recent quarter. D.R. Horton depicted a loss of $12 million or 4 cents per share (excluding special items) in the first quarter of fiscal 2011 ended December 31, 2010 compared with a profit of $42.8 million or 12 cents per share (excluding special items) in the first quarter of previous fiscal year. Meanwhile, PulteGroup showed a wider loss of $165 million or 44 cents per share in the fourth quarter of 2010 compared with $117 million or 31 cents per share in the same quarter of 2010.

However, KB Home (KBH) topped Lennar by posting a profit of $17.4 million or 23 cents per share in the fourth quarter ended November 30, 2010. However, the company’s profit declined substantially from $100.7 million or $1.31 per share in the year-ago quarter.

 
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