Lennar (LEN, LEN.B) on Thursday projected below-consensus earnings for the fiscal fourth quarter as the homebuilder's chief executive cautioned that rising interest rates could further pressure housing affordability.
The company expects earnings per share of $1.30 to $1.65 for the ongoing quarter, Chief Financial Officer Diane Bessette said during an earnings conference call. Analysts in a FactSet poll are looking for fourth-quarter EPS of $2.02 on a GAAP basis and $2 on a non-GAAP basis.
Lennar's fiscal third-quarter adjusted EPS of $1.23 trailed the $1.29 consensus view late Wednesday. Revenue declined to $8.05 billion from $8.81 billion a year earlier, below Wall Street's $8.32 billion expectation.
"Interest rates and consumer confidence constrained the improvement that we anticipated going into the quarter," Chief Executive Stuart Miller said on the call, according to a FactSet transcript.
The ongoing housing shortage continues to drive the need for more supply, but "the market becomes more difficult as interest rates test affordability, particularly within our price ranges," Miller told analysts.
Miller said that the 30-year fixed mortgage rate is now at approximately 7%, up from 6.4% to 6.5% during the last earnings call.
"So the modest relief we saw earlier in the year has reversed," he said. "To carry a home, fewer families can afford to both produce a down payment and qualify for a mortgage."
On Wednesday, the Federal Reserve's raised its policy rate for the first time in just over three years amid persistent inflation and signaled an additional hike later this year.
"The (Fed's) assistance is clearly off the table for practical purposes and not a near-term source of relief," Miller said.
The Fed will likely lift interest rates by additional 50 basis points by the end of the first quarter, Deutsche Bank and Macquarie Group said, pointing to what they saw as a hawkish "dot plot."
US housing starts declined to a three-month low in August, government data showed Thursday, as homebuilders grappled with higher financing and material costs. On Wednesday, the National Association of Home Builders and Wells Fargo said that homebuilder confidence reached a 12-month low in September.
"Rate cuts, when they eventually come, will be a meaningful tailwind for our business, but we are not holding our breath," Miller said. "We are not building our business plan around those rate cuts."
Lennar's class A stock was down 0.3% intraday, and has fallen 24% so far this year.
Price: $78.00, Change: $-0.36, Percent Change: -0.46%
