Lennar Corp Q2 2011 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Dan Oppenheim - Credit Suisse - Analyst : Thanks very much. Was wondering if you can start off talking about the strategy in the home building business. You talked about a real focus on minimizing the level of specs there, but if you look at the backlog conversion, it would seem that you've got a lot of homes that are converting to sales pretty quickly. How do you describe that in terms of what you are doing to specs and how you are managing that process?

Question: Dan Oppenheim - Credit Suisse - Analyst : Great, thanks. And I guess second question, wondering about the pipeline of transactions in Rialto business is unusually large. Any sense in terms of what you've been seeing in the past as you've been looking at transactions, in the pipeline, what percent ends up closing? How realistic it looks to be in terms of say large volume here in the next couple of months?

Question: Dan Oppenheim - Credit Suisse - Analyst : Great. Thanks very much.

Question: Ivy Zelman - Zelman & Associates - Analyst : Thank you. Good morning, guys. We've got a lot of questions from investors on is it better to be land light or have land given that the outlook seems pretty ominous right now by many? And also, should you be a move up or entry level, and seem to be a push to move up. So realizing that's two questions in one, if you can try to help us frame your views of that? And lastly, I will get my second question in without getting back in queue -- pricing review and what pricing dos when you're underwriting ground, or you think it's going to continue to go down over the next 12 months?

Question: Ivy Zelman - Zelman & Associates - Analyst : Great. Thanks, guys.

Question: Michael Rehaut - JPMorgan Chase & Co. - Analyst : Thanks. Good morning, everyone. First question, just on May, in the press release, you discussed it being up 30% year over year in terms of orders. I was wondering if you could give us a sense of sales pace and also how pricing and incentive trends have been relative to -- sequentially relative to April just this -- just month to month how you have seen things trend.

Question: Michael Rehaut - JPMorgan Chase & Co. - Analyst : And that flatness would then be also with regards to sales pace?

Question: Michael Rehaut - JPMorgan Chase & Co. - Analyst : Okay. Second question on the gross margins -- still staying in that essentially that 20% to 21% range. I think basically you said last quarter that the backlog gross margins were roughly 20% -- at the 20% level. So I guess the question is, going forward in the next couple of quarters, you expect to remain essentially in that 20% to 21%? Or given the perhaps slight increase from closings from new communities or to the extent that you can perhaps achieve some further benefits from lowered costs per square foot, are there any things that might drive your expectations towards higher -- the higher end of that 20% to 21%? Or just how should we think about that going forward?

Question: Michael Rehaut - JPMorgan Chase & Co. - Analyst : Great. Thanks, guys. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: David Goldberg - UBS - Analyst : Good morning, everybody. My first question actually, somewhat of a follow-up to Mike's question, and I appreciate the details on the cycle times and the direct cost per square foot, but I'm trying to get an idea of how you guys benchmark your efficiency and your purchasing relative to kind of your internal goals and your targets, and also relative to what your competitors are doing. I'm just trying to get an idea kind of maybe what's left for you there in your minds, and how you kind of -- as you think about it over time, how do you determine how well you are doing? It seems pretty impressive, so.

Question: David Goldberg - UBS - Analyst : Got it. And then just my follow-up question here. Interesting to hear about -- more talk about the reinvigoration of Everything's Included. I'm wondering if you can talk about -- you know you also talked about in your individual communities, your individual markets, building the product that meets the customer demand. And I'm trying to get a sense of how much your Everything's Included product, what is included differs market-to-market, buyer segment to buyer segment. Do you find that people generally want the same things in most of your markets, and so you get to know more purchasing power on more of a national basis on some of those products? Or is it kind of different

Question: David Goldberg - UBS - Analyst : Got it. Thank you.

Question: Jade Rahmani - Keefe, Bruyette & Woods - Analyst : Yes, thank you for taking the question. Just on Rialto, I wanted to find out has the timeline for deals coming to market, due diligence, spending or anything related to the process, materially changed? It seems that one change is you're looking at more and more negotiated transactions. And then the follow-up would be, I take it from your comments that based on what's expected to close in the next 60 days that the opportunity fund is fully invested. Can you give the schedule of future commitments on this fund and Lennar's incremental investment? And if you raised a follow-on fund of this size, what do you think the timeline for capital deployment would be on that? Thanks a lot.

Question: Jade Rahmani - Keefe, Bruyette & Woods - Analyst : Just a clarification -- is there a maximum size on the opportunity fund that you could disclose? And also how you think about Lennar's capital allocation to Rialto -- is there some limit to how much you would invest? Thanks a lot.

Question: Jade Rahmani - Keefe, Bruyette & Woods - Analyst : Right. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Megan McGrath - MKM Partners - Analyst : Good morning. Thanks. I wanted to follow up a little bit on the pricing environment and the incentives. I'm wondering if you could give any more color on the increased incentives. Did they come at a particular time in the quarter for a particular product? Was it to get rid of that spec mostly? Or do you think they will kind of stay at this elevated level at least? Did you see that in June? Thanks.

Question: Megan McGrath - MKM Partners - Analyst : Great. Thanks. And then just a little bit of switching topic. I wanted to follow up with Jeff on your comments around the unusually large pipeline. Any thought as to what's driving that on the part of the bank? Do you think they're coming under pressure? Do you think their outlook for real estate has gone down? What do you think is increasing the pipeline so much?

Question: Megan McGrath - MKM Partners - Analyst : Great. Thanks.

Question: Rodney Nassay - KeyBanc Capital Markets - Analyst : Hi, this is [Rodney Nassay] on for Ken. Hello, everyone. I wanted to clarify, on the units under construction, how many units do you have finished and how many are under construction? And how does that compare to last quarter?

Question: Rodney Nassay - KeyBanc Capital Markets - Analyst : Okay. And with 449 communities at the end of 2Q, how many communities do you expect to have active at the end of 2011?

Question: Rodney Nassay - KeyBanc Capital Markets - Analyst : Okay. All right. Thank you.

Question: Rob Hansen - Deutsche Bank - Analyst : Hi, this is actually Rob Hansen on for Nishu. You briefly touched on lending standards and just wondered -- to see -- get your thoughts on how tight they are. We recently heard from one builder that said that for the first time in three years, they saw a slight easing in lending standards, so just wanted to get your thoughts on that. Thanks. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Rob Hansen - Deutsche Bank - Analyst : All right. Thank you very much.

Question: Adam Rudiger - Wells Fargo Securities - Analyst : Hi, most of my questions have been answered, but I just wanted to first ask housekeeping -- if you could tell me owned versus [auction] lots. And then I had a question on SG&A. I would have expected probably I think a little bit less of a sequential increase in SG&A given -- I would have thought I guess there's usually more operating leverage there, more kind of a fixed cost we're currently running at, so I was wondering if you could comment on that, and maybe if possible break out within the SG&A, what part of those expenses might have been attributed to new community openings.

Question: Adam Rudiger - Wells Fargo Securities - Analyst : (technical difficulty) we should assume that there could still be some additional cost running through there? And any idea that -- I think some other builders have talked about being at a somewhat of a fixed cost level right now and you can increase volume without any corresponding increase in expenses. Is that potentially a little bit inaccurate given that you have all the new community opening still?

Question: Adam Rudiger - Wells Fargo Securities - Analyst : Thank you.

Question: Paul Shobalfian - Ticonderoga Securities - Analyst : This is [Paul Shobalfian] for Stephen. Your orders have been trending down for several quarters now in Houston and I was wondering if you might be able to give a little bit of color on the reason behind that.

Question: Paul Shobalfian - Ticonderoga Securities - Analyst : Okay, thank you. And then your community count growth was a little bit lower than we were expecting this quarter, and I guess that you've been opening roughly 50 communities a quarter. Were there more closings, closeouts, this quarter? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Paul Shobalfian - Ticonderoga Securities - Analyst : Okay; so the net increase is probably in line with what we should expect for next quarter as far as community growth?

Question: Paul Shobalfian - Ticonderoga Securities - Analyst : Okay. Thank you.