So what am I seeing in Lennar's crystal ball
Balance Sheet
They have increased cash to one billion plus or roughly $7 a share and they have paid down no debt.. their debt to equity is still a rather strong 38%.... so they are doing the right things to ensure their survival............ however, their land position is so deep and i have discussed the overvaluation of raw land, that if they are not writing off raw land (which I suspect they aren't), they will survive but have several years of breakeven or worse performance... Lennar is dead money because they have too much land.......... end of story........ they aren't going bankrupt, but you will never see gains here in stock unless it is short covering......... Lennar is Iraq...
Income Statement
Closings are through the floor YOY..... which only makes your land position longer....
Gross margins before impairments increased to 17.1% from 14.3%.... all of those write offs are effective... but as I mentioned above, the builders are writing off primarily finished lot inventory in order to improve non-earnings today............... why write off raw land that is moth balled when you get no earnings gain today............. see my point......... you may be saying why not write off everything... there is a thing called debt to equity ratio... i have brought up this point on the reason why I don't like OHB and dont trust their auditors (who are different than the auditors who do most of the homebuilders)... OHB's auditors are more lenient on their rulings... trust me I know auditors in both camps
SG&A increased to a whopping 18.4% from 16.9%... ok 16.9% was industry leading worst behind WCI, but they are still going up??? No suprise here... I warned many of you back in January I think about 4th quarter being the last hoorah in closings.. because that is when the bulk of builders closings occur... and that going forward, you would not see the closings to spread your cost of SG&A around........ this is what I am talking about... SG&A is going to balloon everywhere...
The actual loss was 56 cents a share below analysts loss projections of 1.02.... don't get tricked here... first, the loss was bigger than 56 cents, but LEN received a tax benefit for losing money again.......... additionally, as with Financial stocks you shouldn't care about earnings with builders you should care about balance sheet.... additionally, you shouldn't care about earnings of builders you should care about cash flow and future sales
Future Sales
New orders plummeted to 3,045 a 57% YOY drop.... the monthly sales absorption per community dropped from 2 to 1.3... this is insane people... a lean builder needs 3 a month per community..... 1.3 a month per community!!!!! why even have a community open... this is the average.. you cannot call a bottom when FUTURE sales per community continues to drop... is that understood?
Have you ever heard the term same store sales in the retail sector? It is very simple, it is not about sales growth it is about sales per retail store........... now do you get it Mr. Analyst? If McDonald's says sales are up, but sales per store are down 50% are they rewarded? No.... this is how you need to really look at builders... sales per community selling effort
Additionally, what is the first quarter the beginning of???? Spring Selling Season......... you know where you build up that huge backlog because everyone is contracting for homes prior to summer...... because once summer comes, orders dry up............... these new orders occur during spring selling season...
I've warned you over a month ago that spring selling season was a bust per my contacts at a number of national builders......... is this not confirmation? I also explained the phenomenom of spring selling season
The backlog of 3,398 is less than closings.. additionally, LEN has around 4 units in backlog per community!!!!!!!!!!!!!!! think about the massive master planned communities Lennar has and they have 4 per selling effort in backlog.......... by the way....... this is the worst of any builder..........
Future sales mean more than current EPS.... Lennar beat analysts lowly expectations... congratulations you just won a free lunch at a timeshare resort..... people, it is about future sales / future earnings.......... they are still going in the wrong direction
As I type LEN is up 20 cents...... let the lemmings have their day in the sun...........
Investors have been trained to do what?????
1) trained to look at earnings growth, PEG, earnings misses and suprises
2) think about the funamentals of companies... hmm... I drink Monster, maybe I should buy HANS
Investors are not trained to understand cashflow, balance sheet, and backlogs/future sales................ This is why investors piling into builders are not getting it........... They have not been trained... they think they are catching the bottom because LEN's miss was to the positive side (earnings) and talking heads are saying the bottom is in (recent analysts upgrades) fundamentals...... Builders and Financial stocks are a different ballgame today... you better know the new rules of investing when looking at these stocks
ackkk... huuu hhuuuu huuuu.... akkkk akkkk..... whew, I feel much better now that I puked.... see it didn't take that long for me to puke up that McDonald's breakfast...........
also thanks to the fellow fools who provide excellent insight in the comments section of my blogs.. as i have said before, you will learn just as much in my comments section as you will in the actual blog post...
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