Lennar, the second-largest U.S. homebuilder, reported a drop in quarterly gross margin that overshadowed a higher-than-expected profit. Fred Katayama reports.
Higher costs for land and construction drove down Lennar's quarterly gross margin. That drop overshadowed a higher-than-expected profit, sending the company's stock down on Tuesday. Lennar for its part said that limited land and labor and tight inventory actually mean higher price tags on homes. Vespula Capital's Jeff Tomasulo is cautious about the outlook for the homebuilding sector. SOUNDBITE: JEFF TOMASULO, CEO, VESPULA CAPITAL, (ENGLISH) SAYING: "I'd be a little concerned in homebuilders only because of the, you know, obviously great raise that they've had since 2009, and now we're going into this rising rates environment, this rate increase over the next, say 18 months, 20 months. And then a lot of the mortgages that have been given out, people buying just because they have this low interest rate that they can get involved in. So I think you're gonna see definitely a dip in that." Orders for Lennar's homes - a key indicator of future revenue - rose about 12 percent in the first quarter. This is its biggest increase in more than one and a half year. Lennar's bigger rival - D.R. Horton - also posted a drop in gross margin in the quarter.