管理層發言
Welcome to Lennar's First Quarter Earnings Conference Call. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to David Collins for the reading of the forward-looking statement.
Thank you, and good morning, everyone. Today's conference call may include forward-looking statements, including statements regarding Lennar's business, financial condition, results of operations, cash flows, strategies and prospects. Forward-looking statements represent only Lennar's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Lennar's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in our earnings release and our SEC filings, including those under the caption of Risk Factors contained in Lennar's annual report on Form 10-K most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements.
I would now like to introduce your host, Mr. Stuart Miller, Executive Chairman. Sir, you may begin.
Good morning, everyone, and thank you for being here today. We're in Miami, and I’m joined by Diane Bessette, our Chief Financial Officer; David Collins, our Controller and Vice President; Katherine Martin, our Chief Legal Officer; Bruce Gross, CEO of Lennar Financial Services; Eric Fader, President of Lennox; and we have Jim Parker and David Grove, our new Area Presidents overseeing operations. As you know, Jon Jaffe officially retired at the beginning of this year. While we miss Jon, the experience and leadership within our team will keep us on track. Jon, if you're listening, enjoy your time at the beach while we work hard. I assure you that Jim and David are settling into their new roles, although today's conference call is certainly an unexpected challenge for them. Now, let’s proceed. I will first provide a brief macro and strategic overview of the company. After my remarks, you'll hear from Jim Parker and David Grove for a brief operational update. We’re confident you will get to know them well over the next quarters. Following their comments, Diane will present a detailed financial overview along with some guidance for the second quarter of 2026. Then, we will have our question-and-answer session. As mentioned in our press release last night, we're pleased to review our first-quarter 2026 results against a persistently challenging housing market. Recently, this has become even more challenging with the volatility around current events in the Middle East and a decrease in activity from institutional buyers. Nonetheless, we believe we are nearing an inflection point for Lennar. In the first quarter, we focused on our clear strategy, maintaining consistent volume and aligning production with sales. We utilized margin as a buffer and continued to refine our asset-light, land-light manufacturing platform. We have not halted our efforts while waiting for the market to improve; instead, we have kept our volume up and concentrated on programs that lower costs, allowing us to remain profitable while supplying the needed housing. Despite the affordability pressures in our first-quarter margins and bottom line, we saw continuous improvements across our cost structure that will help us stabilize and enhance margins as we produce volume in alignment with market affordability. We feel optimistic about our standing in strategic markets and the progress we're making to adapt our business to current conditions. Now, turning to the overall housing market, the macro economy presents a complex and sometimes troubling backdrop. Home prices remain elevated, rising at a pace generally faster than wage growth. Mortgage interest rates, which showed signs of easing late last year, persist at over 6%, fluctuating around 6.2% to 6.4% for most of the first quarter. The high home prices and interest rates create significant affordability challenges for our buyers, and while consumer confidence hasn't collapsed, it's being tested by a myriad of uncertainties domestically and globally. The conflict in the Middle East could quickly change the landscape, potentially leading to higher gas prices, inflation, and interest rates, but time will tell. On the employment side, consumers who once felt secure now question that stability due to technology-driven disruptions and the rapid advancements in artificial intelligence that bring uncertainty about the workforce's future. This adds to the pressure on household budgets, making consumers more cautious about large purchases, especially homes. While traffic to our communities has been steady, the urgency to buy remains moderate. At the same time, tariffs and immigration issues are applying upward pressure on materials and labor, driving overall costs higher. We are working diligently to mitigate these pressures through our trade partner relationships and the efficiencies we've built into our operations. Nevertheless, industry cost structures are rising and difficult to manage. Since our last earnings call, the federal government has only made one strategic move concerning housing. Institutional buyers have been affected by political pressures that paint them as part of the housing dilemma. They generally purchased 5% to 7% of new homes to rent to those unable to buy or those preferring to rent. This shift is likely to reduce market demand and suggest that less supply should be built. On a positive note, the federal government is becoming increasingly involved with housing prices. As I mentioned last quarter, federal officials have been engaging with builders and industry associations to understand affordability challenges and explore practical solutions. These initiatives are not yet finalized, but the level of attention the federal government is giving to the housing shortage is unprecedented, making meaningful policy support more likely than in recent history. Any program that effectively increases access to affordable homeownership would significantly benefit the industry and Lennar specifically. Current legislative efforts are underway with the 21st Century Housing Act, but our assessment is that it won’t meaningfully impact housing or affordability in the short term. Perhaps over the long run, with the right regulations, some effect can be expected. In summary, the housing market is strained between demand and affordability. Supply remains critically low, and years of underproduction have resulted in a structural deficit that will take years to rectify. The challenges posed by high home prices, elevated interest rates, constant cost pressures, and cautious consumer sentiment keep the market soft, yet we believe conditions are setting up for a recovery. Now, regarding Lennar's operational strategy, our focus is clear and rests on three main tenets. First, we aim to drive efficient volume operationally; second, we are refining our asset-light, land-light balance sheet to generate strong returns and cash flow; and third, we are implementing technology to support our operational efficiency and improve customer experience. In 2026, we are raising accountability in each area and expect to produce tangible results quarter by quarter. We are committed to reducing costs this year by utilizing and enhancing our operational components. We aren’t passively waiting for the market to change; we are actively adjusting to current realities and have made significant strides. Progress is evident in three main areas. First, we see advancements in cost efficiencies through execution within our divisions. You'll hear more about our production and supply chain developments, positioning us as a low-cost provider. Second, we're gaining traction in our technology initiatives that enhance operational efficiency and speed. We are fostering collaboration between our operators and engineers for rapid development of products and upgrades, ensuring consistency in execution across our platform. Additionally, we've hired a specialized team of engineers and tech specialists to help accelerate our initiatives. You'll hear more about our excellence initiatives celebrating top-tier execution in our technology projects. We've seen progress in our marketing and sales, and David will discuss this further. Our collaboration with Opendoor is enhancing our product offerings, customer acquisition, and overall customer experience. We’re also improving how we manage our extensive land-light bank to become more fluid and seamless in transactions, researching the best risk-adjusted cost providers for unique land deals. Significant cost improvements are underway, but we are just beginning to tap into this opportunity. The third area involves right-sizing our overhead, which will take time before it impacts our earnings. We have recognized that technology migration has increased costs, and we've employed additional consultants and other resources during our modernization. Now that our transition is complete, we can refocus on advancing our business. Our technology team is energized to solve key challenges facing Lennar, while redundant resources—largely consulting and labor—can be phased out as they are no longer needed. As for the corporate side, with Jon Jaffe's retirement, there have been questions about leadership. Its timing coincides with other retirements among our longer-term associates who feel comfortable leaving due to their contributions to Lennar’s success. Those seasoned associates have prepared emerging leaders who are now ready to step up. Jim and David are both seasoned professionals, eager to take on new opportunities, which is precisely how succession should work. New leadership is focusing on efficiencies alongside technological improvements; our SG&A will continue to decline, and our overhead costs are on a downward trend throughout 2026. Now, looking at our first-quarter 2026 results in detail, we maintained a focus on volume and synchronized production with our sales. We initiated 17,425 homes and sold 18,515, keeping our inventory well-balanced. Although we ended the quarter with about three completed unsold homes per community, we're entering the spring selling season with ample inventory ready for sales. Our average sales price was $374,000, essentially flat to our projections and down 8% year-over-year due to incentives aimed at enhancing affordability and driving volume. Sales incentives were 14.1%, comparable to the previous quarter, and we are cautiously optimistic about stabilizing these levels. The new order incentive rate showed positive signs below the delivery incentive. Consequently, our gross margin for the first quarter was 15.2%, reflecting improved discipline across construction and land management. Our SG&A was 9.8%, slightly above expectations, while our net margin reached 5.3%, resulting in a net income of $229 million and EPS of $0.93. Our inventory turnover improved to 2.5 times, up from 1.7 times a year ago, resulting in a return on inventory at 17.4%. We had 1,678 communities at the quarter-end, a 6% increase from last year, positioning us well for the remainder of the year. On the Asset-Light side, we are making strong strides. Less than 5% of our land is on the balance sheet, and our homebuilding inventory has decreased from nearly $20 billion two years ago to $10.5 billion today. Our land banking relationships continue to thrive, achieving an 86% delivery rate this quarter, a notable rise from 52% last year. On the balance sheet, we finished the quarter with $2.1 billion in cash and a homebuilding debt-to-capital ratio of 15.7%. Our robust balance sheet provides us with the flexibility to invest in growth and return capital to shareholders. In conclusion, while we've faced another tough quarter in the housing market, it has also been constructive for us. Although our numbers are not yet where we want them, the trajectory is positive. Costs are decreasing, volume is steady, our asset-light model is thriving, and technological initiatives are starting to show real benefits. We're well-positioned with a strong national presence, a community count 6% higher than last year, and a significantly more efficient cost structure than two years ago. When mortgage rates normalize, we expect pent-up demand to activate quickly, leading to a swift recovery in our margins. We recognize that normalized incentives usually run between 4% and 6%, compared to the 14% we currently maintain, giving us a clear opportunity we are strategically pursuing. Our balance sheet is strong, our land banking relationships are productive, and our technology initiatives are preparing Lennar to evolve and improve in the coming years. We are not only building for the current market but also for the long term. We take immense pride in the dedicated associates who have navigated one of the industry's most challenging environments, taking on difficult tasks and building new capacities while staying committed to our mission of providing affordable, high-quality homes to families across America. We are indeed delivering the American dream. Now, I’ll turn it over to Jim Parker.
Thanks, Stuart, and good morning, everyone. I am Jim Parker, and I'm Lennar's Area President for the Eastern half of the country. I came to Lennar about eight years ago through the CalAtlantic transaction and have been in the homebuilding business for over 30 years. David, and I worked together to drive performance across the Lennar platform and you would hear from David right after me. Let me start by saying that I'm very enthusiastic about where we are as a company and the tremendous progress we've made over the past 3.5 years. While the market has been difficult since interest rates spiked in 2022, we have had a clear and well-communicated plan at Lennar, and we have been coordinated in our execution. The overall housing market has and continues to adjust to a combination of elevated prices in the wake of COVID and elevated interest rates, pressuring affordability and homebuyer confidence across our geographies. Instead of waiting for the market to correct, we believe this is a new normal and began to adapt our business execution to provide the volume the market needs at the prices and incentives where the market can transact. We are focused on refining products, optimizing our everything's included packages, rebuilding margins, and using mortgage rate buydown to maintain or regain momentum. Through our first quarter, we've been seeing early signs of a more consistent demand environment. We will see how that holds up as the market adjusts to the new geopolitical turmoil. Over the last three weeks, over the next three weeks, David and I will visit each of our divisions and conduct our quarterly operations reviews, which happen at the beginning of each quarter. And this is always exciting as we walk through the market at a very local level, we get a direct view of how our leaders think, how they adapt to change, and how they represent Lennar in our markets. These sessions allow us to pair the macro environment with what's actually happening in the field. So our decisions remain grounded in reality. The reviews also give us the ability to discuss our strategies that work in real time. The ongoing dialogue is collaborative, rewarding, and allows us to refine our approach continually, making sure that we stay aligned with the ever-changing conditions and needs of each market. Those conversations aren't just about metrics; they're about people. We get to see our talent in action and understand how each operator engages with landowners, developers, trade partners, and customers. Those relationships drive our ability to secure land, maintain cost discipline, and grow market share. After our people, land is our most vital asset, and we stay closely involved in shaping a disciplined, refreshed land strategy in every submarket so we can grow community count, reduce absorption pressure, and improve margins. We also take a close look at how we are resonating with customers through our local and national marketing and sales efforts, through intelligence tools like RILA, which captures real-time feedback from buyer interactions, and through our dynamic pricing machine in everything's included platform. This collaborative approach ensures that we are aligning product, monthly payment, and value in a way that meets today's buyers' needs while allowing us to strategically reduce incentives and rebuild our margins. This business approach and local focus have allowed Lennar's market position to remain exceptionally strong. We are the #1 builder by market share in 22 of the top 50 homebuilding markets and a top three builder in 42 of the top 50 markets. That leadership reflects our volume-first, value-focused strategy and the strength of Lennar's operating machine. We ended Q1 with 1,678 active communities, up 6% year-over-year. With that growth, we continue to right-price our communities and lessen our incentives. At the end of the day, we run this business hands-on, and it is one Lennar. When we stay close to our operators, close to our customers, and aligned around land, product, and execution, we create consistency across the company. I'm proud of the discipline and momentum our teams are building, and we look forward to carrying that into the rest of the year. With that, I'll turn it over to David.
Thanks, Jim. Good morning, everyone. I'm David Grove, I'm the Area President for the West. Nice to be with you today. As Stuart said, we remain extremely focused on capitalizing on our strategy of asset-light and even-flow production to fuel operational efficiencies and consistent growth. The execution of our strategy is resulting in exactly the outcomes we expected. While we have certainly impacted our margin, we are also realizing lower costs, improved cycle time, and continue to buy well-structured land at rationalized prices, all while continuing to drive efficiencies in our operations. So let me start with our cost savings and cycle time improvement. Our technology-driven bid tool software, coupled with our even-flow starts and everything's included strategy, has allowed us to consistently realize cost savings quarter-over-quarter. We have lowered our direct costs for 12 of 13 quarters sequentially, and we are down 12% over the last two years. Our direct costs are now below pre-COVID levels. In Q1, we achieved just over a 2.5% reduction in direct construction costs from Q4, which represents a 7% year-over-year reduction. Our cycle time on single-family detached homes was down another 5 days quarter-over-quarter to 122 days. This is an 11% year-over-year reduction and an all-time low for Lennar. On the land front, we continue to capitalize on strong relationships with developers and land sellers to fill our land pipeline. Our consistent strategy and creative problem-solving have given us the ability to negotiate both land pricing and terms that will position us for stronger margins and allow us to maintain our land-light strategy. These operational improvements increased our inventory turn by 47% from the prior year to 2.5%. Turning briefly to our marketing and sales machine, which through constant refinement continues to mature and facilitates our ability to execute our strategy and produce results even in the face of a tough market. In the first quarter, we achieved a sales pace of $3.60 per community per month while carefully managing incentives on a home-by-home basis as we use technology to drive volume while preserving price. Our intense focus on optimizing digital spend and driving high-quality leads is continuously improving. In the first quarter, our qualified leads, which represent the highest intent buyers in our funnel, increased 10% year-over-year. Once the lead enters the funnel, speed of engagement becomes a critical metric. Our average response time to customer inquiries improved to 35 seconds in Q1, a 12% improvement from the prior quarter and a 71% improvement year-over-year. This response now extends around the clock 24/7, with digital agents available at any hour. We also measure the quality of our engagement as another critical component. In Q1, we improved our quality scores by 7%, reflecting our continued investment in coaching and AI-assisted performance analysis. We are measuring and accounting for every aspect of our business in order to drive improvement. As a result of refined targeting, faster response times, and higher quality engagement, our digitally driven sales appointments kept increasing 11% from our prior quarter and 17% from Q1 '25, which helped support sales activities in a seasonally softer demand period. Our focus extends to the predictive capabilities of our pricing machine as well. Our pricing strategy focuses on daily evaluation of demand patterns, inventory levels, and pricing discovery data designed to set the price and incentives for each home in each community to optimize margin while maintaining a targeted sales pace. This maximizes sales efficiency and maintains appropriate inventory levels. As I mentioned, we ended our first quarter with three completed unsold homes per community. In conclusion, our team is focused on executing our strategies that drive improving customer acquisition results, reduce direct costs, and enhance operational efficiencies. These efforts, among others, are delivering measurable results and position us for future success.
Before we go forward, Diane, great job guys. But David, how many years have you been with the company?
Okay. Good morning, everyone. So Stuart, Jim, and David have provided a great deal of color regarding our operating performance. So therefore, I'm going to spend a few minutes on the results of our financial services operations, summarized balance sheet highlights, and then provide estimates for the second quarter. So starting with Financial Services. For the first quarter, our financial services team had operating earnings of $91 million. The lower earnings were mainly derived from our mortgage business. The decrease was primarily based on the mix of buydown programs offered to our homebuilding divisions, including an increase in ARMs versus fixed-rate mortgages with ARMs generating significantly lower earnings. And now turning to the balance sheet. Note that this quarter, once again, we were highly focused on generating cash by pricing homes to meet affordability. The result of these actions was that we ended the quarter with $2.1 billion of cash and total liquidity of $5.2 billion. We are well positioned as a land-light manufacturing homebuilder. Our year supply of owned homesites was at 0.1 year, and our homesites controlled percentage was 98%. This configuration significantly lowered our balance sheet risk, especially in challenging environments. We ended the quarter owning 11,000 homesites and controlling 486,000 for a total of 497,000 homesites. We believe this portfolio of primarily option homesites provides us with a strong competitive position to continue to grow market share in a capital-efficient way. Our inventory turn increased to 2.5 times with a return on inventory of approximately 17%. We maintain our focus on increasing asset turns, which will enable us to capture greater improvement in returns when margins normalize. During the quarter, we started approximately 17,400 homes and ended the quarter with approximately 38,600 homes in inventory. This includes about 5,000 completed unsold homes, which, as we've noted, equates to about three homes per community. And then turning to our debt position. Homebuilding debt-to-total capital was 15.7% at quarter end. We ended the quarter with $1.7 billion outstanding under our term loan and no outstanding borrowings under our revolving credit facility. Our next debt maturity of $400 million is due in June. Consistent with our commitment to increasing total shareholder returns, we repurchased 2 million shares for $237 million, and we paid dividends totaling $123 million. Our stockholders' equity was approximately $22 billion, and our book value per share was approximately $89. In summary, the strength of our balance sheet provides us with confidence and financial flexibility as we progress through 2026. With that brief overview, I'd like to turn to the second quarter and provide some guidance estimates. Starting with new orders. We expect Q2 new orders to be in the range of 21,000 to 22,000 homes with continued focus on matching starts and sales paces. We anticipate our Q2 deliveries to be in the range of 20,000 to 21,000 as we maintain even-flow production and turn inventory into cash. Our Q2 average sales price on those deliveries should be between $370,000 and $375,000, and gross margin should be in the range of 15.5% to 16%. As we focus on maintaining volume, we continue to price to market. That said, we believe our Q1 margin of 15.2% should represent the low point for the year. Our SG&A percentage should be in the range of 8.9% to 9.1%, but of course, all of these metrics are dependent on how market conditions unfold. For the combined homebuilding joint venture land sales and other categories, we expect a loss of approximately $20 million. We anticipate our Financial Services earnings to be between $100 million and $110 million. And for our multifamily business, we expect earnings of up to $10 million. Turning to another, we expect a loss of approximately $25 million, excluding the impact of any potential mark-to-market adjustments. Our Q2 corporate G&A should be about 1.9% of total revenue, and our foundation contribution will be based on $1,000 per home delivered. We expect our Q2 tax rate to be approximately 25.5%, and the weighted average share count should be approximately 243 million. And so on a combined basis, these estimates should produce an EPS range of approximately $1.10 to $1.40 for the quarter. And finally, we continue to aim for a full-year delivery target of 85,000 homes for the full year. With that, I'll turn it over to the operator.
分析師問答
And our first question comes from Alan Ratner from Zelman & Associates.
Thanks for the detail, and David, Jim did a nice job. Glad to have you on the call. So first question, obviously, I think, top of mind on recent activity, I think you kind of phrased it well, Stuart. But I'm just curious with the move we've seen in rates here over the last couple of weeks. Obviously, you kind of probably started the process of thinking about the guidance towards the end of your quarter in February when rates were 20 to 25 basis points below where they are today. A, I'm curious, have you continued to see the ability to either stabilize or lower your incentives even over the last couple of weeks amidst this volatility, and B, has the cost of rate buydowns gone up alongside the move in rates we've seen here? And how is that contemplated in the margin guide?
So the question is interesting, Alan, because it happens to be an interesting time to do an earnings call. There's enough brand-new volatility since the end of our quarter to call into question any number of things. I think that we've tried to give as much guidance as we saw through the quarter and not do too much to update that thinking or guidance kind of under the banner that one week in a row doesn't make a trend, either to the positive or to the negative. And the benefit we have right now today is that immediately after this call both Jim and David, as Jim carefully described, will be in the field working with the divisions to see what the actual impact is and think about what we do to either offset or lean into the things we're seeing in the field. As we sit today, without doing too much to update, I don't think we have an update. We haven't seen significant movement either in traffic or in the ability to sell, and I'll let Jim and David weigh in on that in a second. But I just don't think that there's enough information to know whether this will be a short-term program or even if a long-term program, what they're domestically, it will be a net positive or net negative. But as we see things right now, we're not seeing significant movement in the market, it really has been pretty steady. Jim, you first?
No, I agree. Right now, we haven't seen an impact, but it's early to tell. We talked to our division presidents this morning, and they have not seen any change to date this week or the previous week. So we're confident, but we're being very cautious. And like Stuart said, we're making sure we stay really close to the local markets and in tune with that. David?
Yes, we are seeing a similar demand pattern this week as we have in the previous weeks. There hasn't been any significant negative impact, which is positive considering the current macroeconomic situation.
So look, I would just summarize and say that first of all, we generally don't give updated guidance or information. But given the anomalous moment that we're in, it's worth putting it on the table that right now, things are steady as we see them; both Jim and David and myself, for that matter, are day-to-day in touch with our operators to get that feedback in real-time. And we're not seeing something that would adjust the way that we have thought about the information that we've given, including our guidance. And for those of you who've known me well, I don't complete writing the material that I deliver in our earnings call until generally late at night or early in the morning, the night before, so we keep it pretty up to date, and this was pretty well thought through.
That is incredibly helpful. So I appreciate just kind of a walkthrough the timing there of when you kind of put this plan together on what you've seen. Second question on SG&A, recognizing you're not going to give guidance beyond the second quarter. I just wanted to touch on, I think, some of the comments you made, Stuart, about I think you referenced an expected improvement in SG&A in '26 versus '25 given all of the exchanges and maybe some of the headcount changes, I guess, that have gone on the last several quarters. Just want to make sure I'm understanding that correctly. I mean if I look at your SG&A as a percentage of revenue year-to-date through the first half of the year, at least including your Q2 guidance, you're going to be up about roughly 100 basis points year-on-year as a percentage of revenue. Does that mean you're anticipating that to actually be lower on a year-over-year basis in the back half of the year? Or am I reading too much into that commentary?
So let me say that first, let me broaden the discussion to overhead, which is broader than just SG&A. But the answer is that as numbers are reduced, it takes time for those numbers to flow through and come through our earnings reports. I think theoretically, yes, we are seeing opportunities and expectations that our overhead is going to be meaningfully lower as we come to the end of the year. Whether it actually flows through one quarter or another, we're going to wait and see. Some of these things get a little bit sticky. But at the end of the day, it's happening in so many interesting areas that we're reducing costs. Some of the costs associated with our technology initiatives are clearly front-end loaded. The transition from our old technology to the new was extraordinarily expensive. That's tapering off. It might take some time for that to flow through. But that's happening more quickly, but there are other elements of what we’re working on, and even the things where we missed have gone down badly at first where money was spent that we don't have to spend anymore. Additionally, as I talked about senior management, we have so many extraordinary people within our company that are deciding to use this opportunity to retire and let the next generation shine. Though we haven't put out a public announcement, I'm sitting off from one of our favorites in Bruce. Bruce is going to be retiring. This has been embedded in that. We've known this for a month. And Bruce is actually going to transition and become part of the Lennar foundation working hand-in-hand with Marshall. But it's really across the company recognizing that overhead reduction or overhead reduction is a positive, but enabling the next generation of leaders to come up and step up and put themselves on display just as you've seen here this morning is really a greater good. And when I say fresh legs, if you look at the energy that Jim and David are bringing to the equation, if you listen to others around the company, the opportunity to take a fresh look at a lot of things is a really unique opportunity that we're leading into right now.
Next, we'll go to the line of Stephen Kim from Evercore ISI.
Thank you for the information. My first question is about how you determine the optimal volume needed to achieve efficiencies in your homebuilding operations, especially considering the technology initiatives. Is it based on a specific market share, or do you take a more bottom-up approach that is somewhat independent of broader market volumes? Last year, it seemed that you were more focused on achieving a specific volume level to gain efficiencies since industry starts were down in the high single digits, which allowed you to gain significant share. However, in your opening remarks, you also mentioned the importance of growing market share as a goal. I want to clarify how you approach the volume needed for a given year. Are there instances where you would be willing to give up some market share, or should we assume that you're always aiming to increase your market share?
Well, the question you're raising is interesting. The answer varies by market, as each one is different. When considering our company's overall strategy, it would be challenging to create a one-size-fits-all approach. Many factors influence that decision, and they are specific to each market. We do not have a specific goal to increase market share, but we understand that having a favorable market share allows us to negotiate more effectively with trade partners and landholders. I will let David speak first about land opportunities and related topics, and then Jim can address other aspects.
Sure. I'd say that market share, by market, we understand based on our position in the market, where we ought to be, and we have a target. But that doesn't really drive what you're asking about. What drives our consistent volume is the way that we thoughtfully put together each one of our land positions and our communities, and we have expectations out early on that we hit a certain pace. And our strategy right now is to maintain that pace, which increased market share is a derivative of our maintained pace on a community-by-community basis and then competitors that are generally slowing down a little bit.
Yes. I believe that our relationships with trade partners are built from the ground up. It truly begins with the community, starting with planning that community and determining the optimal absorption rate. We aim to grow from there. The more effectively we collaborate with trade partners and land sellers, the more opportunities we have for future growth in different communities. Everything is interconnected. It's not about arriving with a predetermined number; it's about developing communities as we launch new ones, which ultimately drives our market share growth. Our approach focuses on smart growth, targeting an absorption rate aligned with market conditions and the right level of trade, and it naturally builds from that foundation.
And I just have to say that the volatility embedded in putting our foot on the accelerator and you take it off and putting on the brake and going back and forth; it only creates inefficiencies in the development process, in the construction process, and all the processes. If we can build the tangibility for our trade partners and even for land partners, we're going to get the best pricing, and we're using that to our advantage. And in each market, we are doing our own very separate, very focused market study to think about the combination of pricing and pacing in our own unique way, focused not on answering competitive information or contextualizing it in terms of how can we rationalize affordability with cost structure to end up with the best configuration for the future.
Got you. That's very helpful. I appreciate that. I guess my second question has to do with volume through the year. So you've reiterated the guide to 85,000 in closings and you're kind of off to a little bit of a slower start than even last year. And it just sort of feels like the year is going to be kind of more back-end weighted. And I just wanted to ask how important is it for you to achieve a more sort of even flow of volume through the year? Is the fact that this year is not going to be quite maybe as much as you might like? Is that a hindrance to you're achieving the efficiencies that you ultimately want to get? Longer term, should we be expecting that you're going to achieve more of a kind of a 50-50 kind of front half, back half kind of cadence?
Look, this is an art, not a science. I can't predetermine today what we're going to do throughout the year. As I said, Steve, and as Jim carefully laid out, Jim and David are getting out into the field for operations reviews, division by division, bottom-up approach, working with the people. And that happens at Lennar all the way through the year. So what we say today might change over the next couple of weeks. We know that there's a lot going on in the world that is affecting both gas prices, inflation levels, interest rates, and that might be short term, it might be longer term. We're going to be connected with what's happening on the ground. And it might be unique to different markets how it actually plays out. What we are solving to is how do we use as much volume consistency as we can to build efficiency in everything that we're doing. But we don't want to, at the same time, not pay attention to what the market is allowing us to do. We don't want to break the market until it's a balancing act. And that's why I say it's not a science. Jim, do you want to add on that?
Yes. I would say this is a major focus for the divisions. We begin this process even before the year starts with our initial forecasting. We analyze the different quarters and strive to ensure they are as balanced as possible. This really centers on prioritizing land and timely community openings to avoid delays. I believe we are improving in this area. Ultimately, it's about planning for the next 18 months, assessing how the quarters will look, and determining where we need to focus our community count and efforts. For instance, in Northeast markets, we need to enhance the speed of home site development using various methods that account for weather conditions. Effective planning is essential, and the divisions excelling in this have a well-structured operation.
To say that we are focused on consistency of volume, but we are also responsive to the market as the market shifts underneath us. I think what holds us in good stead is that we have clarity of strategy. We are going to start at our sales paces, open communities on time. We're going to price to market where the market happens to be, and we're going to deliver our homes and not carry excess inventory now.
And our pricing mechanism, our pricing tool is really primarily focused on getting a kind of tactile sense of where the customer is and where affordability lies. And this is our primary driver in our day-to-day hands-on pricing all the way through the company.
Next, we'll go to the line of Susan Maklari from Goldman Sachs.
My first question is, it's impressive to see how the inventory turns hit 2.5 times this quarter despite all the pressure that you are seeing in the market. I guess, could you talk about where you see the upside to inventory as you think about the construct of those new areas of focus that you're really looking to achieve as we move through the next several quarters?
That's a great and timely question. Eric and I recently discussed various capital market strategies in New York that could shape the company's future. While I can't specify exactly where we can go, I see significant opportunities ahead. The financial transformation we're undergoing, particularly the separation of land from homebuilding and the balance sheet, is becoming increasingly intriguing. By examining risk-adjusted capital pricing and carefully addressing our risk profiles, we can better manage the costs associated with our land assets. As mentioned earlier, we're focused on specific land banking initiatives and optimizing how we allocate land to minimize capital and option costs. Additionally, by adopting a capital market mindset, we're improving how we make land available and enhancing our just-in-time delivery processes, which will benefit our inventory turnover. I believe this is just the beginning for us, and our approach will effectively align our operational and capital markets strategies to enhance overall performance. It's also crucial to emphasize the role of our core products in this context. By concentrating on a limited range of products that we produce consistently, we can increase efficiency. Our cycle times have improved significantly, dropping from 137 days to 122 year-over-year, and from around 127 days to 122 quarter-over-quarter. This focus on core products presents a valuable opportunity for continuous improvement. How would you like to discuss that?
Yes. I believe the core product will not only reduce our cycle time but will continue to improve. Additionally, it allows us to streamline our cost structure around a few core products that are designed very efficiently within the everything's included package. It helps us take advantage of our purchasing structure and leverage our scale. This combination of volume core product and efficient build is leading to lower costs and faster cycle times, which will positively impact our inventory turns.
I would just say the cycle time, you go to these ops meetings and the teams are so proud of getting lower and lower and it's become the best-friendly competition I've seen amongst divisions. So I love sitting there when Charlotte says, they're at 101, they say, well, that's great, but why is Greenville at 96? They come back the next quarter and even hit it harder. So it's become a very badge of honor. And the core plans just make us so much more efficient for our trades to build. They know they get repetition. They know what they're looking for, and inspections go smoother. So it really all helps at the cycle time.
Yes. And look, I've been there with you. You've been the instigator. And it's not just a competition to see who can do things faster. It's a combination of being able to bring the consistency that we give to our trade partners and even to land partners, but to our trade partners, enabling us to get better and better at the coordinated efforts of building homes, and some of our divisions just really pay the new ground to improve that cycle time in a very constructive way.
Yes. And the best thing is quality is improved with cycle time. It becomes so much more efficient.
Quality and customer experience: North stars for the company.
Okay. Well, that was very helpful color. And actually, just following up on it quickly, where are you in terms of the core plans? Can you talk to what percentage of the deliveries today are coming from that? Is there any kind of a target that you can share with us as you think about, I don't know, the next 12 or 24 months? And I guess also as part of that, it leads to the question around capital allocation. And as this comes together, can you talk to how you're thinking about the top uses of cash and how shareholder returns and growth and all these other initiatives fit within that?
So look, the discussion of core plans, again, we can talk about it corporately, but the reality is it's division by division by division. But the more important thing is how technology plays into all of this because we are migrating to a place where our due diligence program relative to land is going to be tied to an element of core plan engagement that is going to merge the company using technology towards greater and greater use of core plans. Now you can imagine if we're talking about the land engagement and due diligence process, it's going to take some time for this to actually come through the system, but this is an area where monitor technologies across a diffuse platform, 50 divisions coast-to-coast, and getting that entire enterprise to push towards core plan is going to be technology that really drives us forward, and we're building those connectors right now. But is there anything that you guys would say about where core plans are percentage-wise and how we are migrating through your views and division engagements?
That's generally across the platform, call it, 65% core, and that's going to vary by division from some at 50% to some at 90%. And that is really relative to the rollout of our core in order to meet different buyer profiles at different price points.
Our final question comes from John Lovallo from UBS.
Maybe firstly, in trying to kind of bridge the homebuilding cash, it appears that there's roughly $1 billion or so of cash flow use in the first quarter. It seems like it was largely attributable to inventory, which was a bit surprising given that you started and you delivered roughly the same number of homes in the quarter. So kind of what's driving the pressure on cash flow given the expectation for a pretty strong conversion in 2026?
It probably relates most to average sales price coming down.
Yes, I think so, John. We are very focused on pricing to market. Our incentives are at a higher level. While we are achieving cost savings that are increasing cash, it's challenging to compensate for the lower revenue on a per home basis. Therefore, we need to continue purchasing homesites to maintain production. I believe you'll notice some improvement in matching against the quarters' progress, but the first quarter still has low revenue due to fewer deliveries. It’s somewhat of an anomaly for the year.
Okay. I understand. Considering the current dynamic market, I wanted to follow up on Steve's question. The delivery target of 85,000 suggests that you plan to start building more homes than you have orders for in the second quarter, working through that inventory in the second half. If that's correct, can you explain what's driving the significantly higher deliveries in the second half compared to the implied inventory in the second quarter if that's not the case?
First of all, we have some uncertainties regarding the recent developments that have changed the landscape. The situation in the Middle East is capturing everyone's attention, and we are uncertain about its implications and how it will affect us. Additionally, the sidelining of institutional investors raises questions. Many are contemplating whether this will encourage more primary buyers to enter the market, as some suggest, or if it will decrease overall volume. We'll have to wait and see. I've left room for these changes, which impact our delivery forecasts for the year. What motivates us to pursue our target is the fundamental optimism I've been sensing from both David and Jim regarding our business setup. While geopolitical and domestic issues are creating a balancing act, there has been a prevailing sense of optimism about our existing programs. Jim, would you like to elaborate on that?
I think it comes down to the steadiness we see in many markets, but more importantly, the energy among our associates who are beginning to recognize the benefits of our various programs. For instance, with virtual customer care, I had operational meetings over the last two days across three divisions, and each division mentioned this. Initially, they faced challenges, but now they are experiencing improvements in efficiency, customer experience, and response times. Our teams are truly starting to embrace what we have been developing for years, and this growing confidence energizes many. When you cultivate that positive energy, it becomes a driving force.
I mentioned that we currently have the opportunity to take the time to assess what the market presents to us in the coming months within this environment. Additionally, due to our reduction in cycle time, we have the flexibility to make adjustments as needed to evaluate whether 85,000 is a reasonable target as the year unfolds.
Well, I think that generally speaking, the unified view right now is it's definitely within our scope and within the opportunity set, and we're pretty enthusiastic about the programs that we have in place that have given us somewhat of an edge on the market, certainly an edge on information flow and staying close to the market. And of course, that very careful dance that we dance of having corporate or time to the individuals and the divisions that are actually seeing what's happening on the ground. I think that there's a general sense of optimism to the company right now that we're going to do as good as the market allows. And I think that's a good place to stop. I want to thank everyone for joining us. I couldn't be more excited about the program we have in place and having David and Jim make it through their first traumatic conference call. And we look forward to coming back together, of course, in the second quarter and beyond as a management team that's invigorated and focused on the best of a tough situation. Thank you.
That concludes Lennar's First Quarter Earnings Conference Call. Thank you all for participating. You may now disconnect your lines. Please enjoy the rest of your day.