Lennar Corporation, one of the nation's largest home builders, experienced a decline in its shares during after-hours trading following the release of its impressive fourth-quarter and full-year earnings. While the company surpassed analysts' estimates, investors seemed concerned about Lennar's margin on home sales, resulting in some profit-taking. Despite this setback, the stock had reached a new high on Thursday due to the decline in mortgage rates.

Strong Financial Performance

Lennar reported earnings of $4.82 per diluted share, generating $11 billion in revenue for the fourth quarter. According to FactSet, analysts had projected earnings of $4.59 per share on $10.2 billion in revenue for the quarter. Moreover, the company's robust full-year earnings of $13.73 per share on $34.2 billion in revenue also surpassed expectations.

Impact of Fluctuating Mortgage Rates

During Lennar's quarter that ended on November 30, mortgage rates experienced significant fluctuations, impacting housing costs. Freddie Mac's weekly measure of mortgage rates rose by 0.67 percentage points from early September to reach its peak in late October, before gradually decreasing throughout November.

Since then, mortgage rates have continued to fall. According to Freddie Mac's latest report, the average 30-year fixed mortgage rate this week is at 6.95%. Another survey conducted by Mortgage News Daily indicates that rates as low as 6.62% were recorded on Thursday.

Overall, despite the slight decline in Lennar's shares, the company's strong financial performance and favorable market conditions suggest a positive outlook for the home building industry.

Lennar Reports Strong Sales Despite Higher Interest Rates

Lennar Corporation, one of the nation's leading homebuilders, announced impressive sales figures for the fourth quarter of 2023. Despite rising interest rates, home buyers remained responsive to incentives that enhanced affordability, according to Lennar co-CEO Stuart Miller. The demand for housing continued to surpass supply, driven by a well-documented production deficit and chronic supply shortage.

The company exceeded expectations in both deliveries and new orders. Lennar received a total of 17,366 new orders during the fourth quarter and delivered 23,795 homes. FactSet estimates had predicted 16,816 new orders and 22,070 deliveries. Notably, new orders rose by 32% compared to the previous year, while deliveries saw a 19% increase.

However, the strong sales figures did come at a cost. Lennar reported a gross margin on home sales of 24.2%, slightly lower than the expected 24.6% consensus. Stuart Miller attributed this to the company's operating strategy of maintaining production pace in line with sales pace. This approach utilizes pricing and margin adjustments as a shock absorber. The pressure from higher interest rates impacted the company's home-building gross margin in the fourth quarter.

Looking ahead, Lennar anticipates new orders ranging from 17,500 to 18,000 in the first quarter of 2024. The company plans to deliver 16,500 to 17,000 homes during the same period.

Investors responded positively to Lennar's performance, as the company's stock closed up 6.6% on Thursday, reaching a new high of $154.81 according to Dow Jones Market Data. Shares have soared by 21% this month and an impressive 71% this year.

However, shares experienced a slight decline of 2.9% in after-hours trading. Lennar will be discussing these results further during a conference call scheduled for Friday at 11 a.m. ET.

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