09:25 AM EDT, 09/20/2024 (MT Newswires) -- Lennar's ( LEN ) lower-than-expected fiscal third-quarter gross margin on home sales and a downbeat outlook for the metric weighed on investor sentiment despite the homebuilder beating market estimates on earnings and revenue, according to analysts.

Homebuilding gross margin came in at 22.5% for the quarter ended August, down from 24.4% the year before, the company reported late Thursday. The figure was 120 basis points below the market consensus and missed Wedbush Securities' forecast by 50 basis points, the brokerage said in a Friday client note.

Lennar ( LEN ) said its gross margins fell mainly due to a decline in revenues per square foot while land costs increased year over year, partially offset by a decrease in costs per square foot amid lower material costs.

For the ongoing quarter, Lennar ( LEN ) expects gross margin on home sales to be flat with the prior three-month period. The consensus on Capital IQ is for 24.4%.

Shares of the homebuilder were down 3.7% in premarket activity.

Wedbush believes the stock was trading lower because of the third-quarter gross margin miss and the guidance for the metric. The brokerage's unchanged model projected a 130 basis point quarter-over-quarter improvement for gross margin in fiscal fourth quarter, while the Street "assumed a similar lift" due to the company requiring an expansion to meet its full-year guidance of about 23.3%, analysts Jay McCanless and Brian Violino wrote in the note.

In a separate emailed client note, RBC Capital Markets said it views Lennar's ( LEN ) outlook and third-quarter results as "lackluster," while growth also "failed to impress" with its forecast for new orders in line with the Street. The company anticipates new orders in a range of 19,000 to 19,300 homes in the fourth quarter, with an average sales price of about $425,000. Deliveries are pegged at 22,500 to 23,000.

Lennar ( LEN ) reported fiscal third-quarter earnings of $4.26 a share, up from $3.87 the year before, surpassing the Capital IQ-polled consensus of $3.63. Revenue climbed to $9.42 billion from $8.73 billion last year, topping the Street's view for $9.16 billion.

The Federal Reserve's decision earlier in the week to lower interest rates "should start to enhance affordability and accelerate the already strong demand for both new and existing homes," Lennar ( LEN ) co-Chief Executive Stuart Miller said in the late Thursday statement. "Lower rates and controlled inflation will likely boost confidence."

Homebuilding revenue advanced 9% year over year to $9.05 billion in the third quarter, buoyed by a 16% increase in deliveries to 21,516 homes. New orders rose 5% to 20,587 homes, the company said.

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