Analyst Note| Brian Bernard, CFA, CPA |
Lennar reported record profit margins during its fiscal third quarter as the no-moat rated homebuilder continued to enjoy strong pricing power in the undersupplied United States housing market. While rising construction costs have become increasingly problematic for the homebuilding industry, Lennar has managed to maintain a very favorable price/cost equation. Indeed, during the third quarter, revenue per square foot increased 14% compared with an 8% increase in cost per square foot, which led to significant homebuilding gross margin expansion (420 basis points year over year to 27.3%). Management guided to even stronger pricing (average selling price 4% higher sequentially to $445,000) and gross margin (28%) during its fourth quarter.