LENNAR CORP /NEW/ (LEN)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and accompanying notes included under Item 1 of this Quarterly Report on Form 10-Q and our audited consolidated financial statements and accompanying notes included in our 2025 Form 10-K.

Outlook

Lennar's third quarter 2026 results reflect consistent operational execution against a macro backdrop that grew more difficult during the quarter. We delivered 20,840 homes, within our guidance range, and generated 20,879 new orders, just below our range, while gross margin improved sequentially to 15.8% and net earnings totaled $284 million, or $1.19 per share or $1.23 excluding one-time items. We remain intentionally focused on bringing affordable housing to an affordability-constrained consumer base, a choice that is still weighing on near-term margin but is building the volume and market position we believe will drive margin higher over time. While underlying housing demand remains steady, structural supply constraints persist.

Mortgage interest rates moved higher during the quarter, with the 30-year fixed rate rising to approximately 7%, compared with the 6.4% to 6.5% range earlier this year, and the 10-year U.S. Treasury yield rising to approximately 5%. This increase was driven in significant part by inflation associated with energy prices tied to the ongoing geopolitical tension with Iran. Higher rates and living costs have further strained affordability, and in many of our markets, a significant portion of prospective buyers are finding it harder to qualify for a mortgage. The Federal Reserve remains focused on incoming economic data, but near-term interest rate relief appears unlikely. Resales of existing housing inventory have also begun to increase, particularly in Texas and Florida, intensifying competition for buyers in those markets. In addition, labor availability has become more constrained in certain geographies, reflecting immigration enforcement activity and competing construction demand, which we expect will continue to add cost pressure. Land costs per home, reflected in part through option maintenance fees associated with extended deal durations, have increased and will continue to pressure margin for a period of time while we work through land positions underwritten and committed under prior market conditions.

Notwithstanding these pressures, sales incentives on deliveries declined during the quarter, and cost efficiencies from scale have helped offset a portion of the increase in labor costs. Construction costs per square foot declined further to approximately $80, down 6% from a year ago, and our cycle time reached a record low of 116 days, down from 121 days from second quarter 2026 and 126 days a year ago, reflecting the continued benefit of consistent volume and even-flow production.

Our operating strategy has not changed. We remain focused on two priorities: driving consistent, even-flow production and volume, and continuing to refine our asset-light, land-light balance sheet model to generate strong and growing cash flow and returns. We continue to price to market and to offer incentives intended to maintain volume and affordability. We own approximately 2% of our homesites, with the substantial majority controlled through third parties, and approximately 86% of homes delivered this quarter were sourced through our land banking arrangements.

For the fourth quarter of 2026, we expect new orders in the range of 19,500 to 20,500 homes, with continued focus on matching starts and sales pace. We anticipate deliveries in the range of 22,000 to 23,000 homes as we maintain even-flow production and convert inventory to cash. Our average sales price on those deliveries is expected to be between $370,000 and $380,000. We expect gross margin in the range of 15.5% to 16.0%, and our SG&A percentage should be in the range of 8.7% to 9.0%. These expectations are dependent on market conditions and may change as the quarter progresses.

We believe the fundamental shortage of housing in America has not been resolved and that demand remains deferred rather than diminished. We intend to continue managing our cost structure, cycle time, and land basis with the objective of positioning Lennar to benefit as affordability improves, whether through changes in interest rates, wages, or regulatory and entitlement reform, while remaining disciplined in the market as it exists today.

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(1) Results of Operations

Overview

We historically have experienced, and expect to continue to experience, variability in quarterly results. Our results of operations for the three and nine months ended August 31, 2026 are not necessarily indicative of the results to be expected for the full year. Our homebuilding business is seasonal in nature and generally reflects higher levels of new home order activity in our second and third fiscal quarters and increased deliveries in the second half of our fiscal year. However, a variety of factors can alter seasonal patterns.

Our third quarter net earnings attributable to Lennar in 2026 were $283.9 million, or $1.19 per diluted share, compared to third quarter net earnings attributable to Lennar in 2025 of $591.0 million, or $2.29 per diluted share. Excluding mark-to-market losses of $53.3 million on technology investments and a benefit related to one-time items of $39.2 million, net, in our Financial Services segment, third quarter net earnings attributable to Lennar in 2026 were $294.3 million, or $1.23 per diluted share, compared to $516.0 million, or $2.00 per diluted share, excluding mark-to-market gains of $99.2 million on technology investments, in the third quarter of 2025.

Financial information relating to our operations was as follows:

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and accompanying notes included elsewhere in this Report. It also should be read in conjunction with the disclosure under “Special Note Regarding Forward-Looking Statements” in Part I of this Form 10-K.

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Outlook

Lennar’s fourth quarter and year-end 2025 results reflect what is and continues to be a difficult housing market. However, while our margin has been under pressure as we focus on bringing affordable housing to an affordability-constrained consumer base, the underlying demand is still strong, while supply is short. During the past three years of difficult market conditions, we have maintained volume, grown our market share and re-engineered our operating platform for a better and more efficient future when the market normalizes.

We began the quarter with the expectation that declining interest rates were the start of a market recovery. While mortgage rates drifted marginally lower in the fourth quarter, the customer response remained tepid, suggesting a combination of poor affordability and diminished consumer confidence continued to limit demand. The threat of a government shutdown and ultimate actual shutdown in October and November further eroded already weak consumer confidence. While traffic was consistent, customers were both hesitant and limited by what they could afford to purchase. Clearly, inflation-driven affordability concerns rose to the center of the national conversation, shaping headlines and policy debates across the country. Cost inflation has clearly had a significant impact on the lifestyle of the average American family. At the same time, concerns about job security have become increasingly prominent as advancements in modern technology and artificial intelligence raise important questions about the future of employment for the American workforce.

On a positive note, the federal government has intensified its focus on the national housing crisis, with a strong likelihood of taking decisive action to enhance affordability. Although the specifics of potential programs remain to be seen, it is clear that significant attention is being devoted to developing impactful initiatives, while avoiding unintended negative consequences. This is the first time in decades that the federal government is actively recognizing the vital role that housing plays, not only in the broader national economy, but also in the well-being of American families.

We know that margins will remain under pressure in the first quarter of 2026 and sales and closings will be seasonally light. However, we have a lower cost structure, efficient product offerings and a strong market position that we expect to accommodate pent-up demand as rates moderate and confidence ultimately returns. Our strategy has positioned us for strong cash flow, higher returns on equity and capital, and stronger bottom line growth in the future. Meanwhile, we will remain focused on volume and even-flow production.

Margins are usually lowest during the first quarter of a fiscal year, and we expect our margins in the first quarter of 2026 will be between 15% and 16%, depending on market conditions. We expect that in the first quarter of fiscal 2026, we will sell between 18,000 and 19,000 homes and deliver between 17,000 and 18,000 homes at an average sales price of between $365,000 and $375,000. We expect to deliver approximately 85,000 homes in the full 2026 fiscal year.

As we have driven growth, production and volume, we have created efficiencies and technology that will make us a better company in the future. We have materially reduced our inventory, our construction costs, and our cycle times, and we have increased, and will continue to increase, our inventory turn. We are determined to build more with less capital deployed so that as margins begin to grow, returns on capital and equity will grow faster.

We are also very enthusiastic about our technology initiatives. They have made us, and are continuing to make us, faster and better in the way that we engage with our customers. We are trying to be the best manufacturing model that we can be. The programs that we have in place are helping us absorb the price reductions we are required to give to maintain desired volume levels. They offer us the likelihood of substantially increasing profit levels when market conditions return to normal.

Results of Operations

Overview

Our net earnings attributable to Lennar were $2.1 billion, or $7.98 per diluted and basic share for the year ended November 30, 2025 and $3.9 billion, or $14.31 per diluted and basic share for the year ended November 30, 2024. Excluding mark-to-market gains on technology investments of $130.2 million and one-time loss of $156.1 million on the Millrose Properties, Inc. exchange offer ("Millrose Exchange Offer"), net earnings attributable to Lennar for the year ended November 30, 2025 were $2.1 billion, or $8.06 per diluted share. Excluding mark-to-market gains of $25.2 million on technology investments, one-time items of $90.0 million in our Multifamily segment and a $46.5 million one-time gain on the sale of a technology investment, net earnings attributable to Lennar for the year ended November 30, 2024 were $3.8 billion, or $13.86 per diluted share.

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Financial information relating to our operations was as follows:

(1) Homebuilding other income (expense), net and other gains (losses), net included a one-time loss of $156.1 million on the Millrose Exchange Offer for the year ended November 30, 2025.

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As previously announced, Lennar Corporation completed our acquisition of Rausch Coleman Homes ("Rausch") in February 2025. Prior year information includes only stand-alone data for Lennar Corporation for the year ended November 30, 2024.

2025 versus 2024

Revenues from home sales decreased 5% in the year ended November 30, 2025 to $32.1 billion from $33.8 billion in the year ended November 30, 2024. Revenues were lower primarily due to a 8% decrease in the average sales price of homes delivered, partially offset by a 3% increase in the number of home deliveries. New home deliveries increased to 82,583 homes in the year ended November 30, 2025 from 80,210 homes in the year ended November 30, 2024. The average sales price of homes delivered was $391,000 in the year ended November 30, 2025, compared to $423,000 in the year ended November 30, 2024. The decrease in average sales price of homes delivered in the year ended November 30, 2025 compared to the same period last year was primarily due to continued weakness in the market and an increased use of sales incentives offered to homebuyers.

Gross margins on home sales were $5.7 billion, or 17.7%, in the year ended November 30, 2025, compared to $7.5 billion, or 22.3%, in the year ended November 30, 2024. During the year ended November 30, 2025, gross margins decreased primarily due to a lower revenue per square foot and higher land costs year over year, which were partially offset by a decrease in construction costs, reflecting our continued focus on cost-saving initiatives.

Selling, general and administrative expenses were $2.7 billion in the year ended November 30, 2025, compared to $2.5 billion in the year ended November

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