Stock Story -
Affordable single-family home construction company LGI Homes (NASDAQ:LGIH) fell short of analysts' expectations in Q2 CY2024, with revenue down 6.6% year on year to $602.5 million. It made a GAAP profit of $2.48 per share, improving from its profit of $2.25 per share in the same quarter last year.
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LGI Homes (LGIH) Q2 CY2024 Highlights:
- Revenue: $602.5 million vs analyst estimates of $617.4 million (2.4% miss)
- EPS: $2.48 vs analyst estimates of $2.12 (17.1% beat)
- Full year home closings guidance lowered
- Gross Margin (GAAP): 25%, up from 22.4% in the same quarter last year
- Backlog: $553.6 million at quarter end, down 7.9% year on year
- Market Capitalization: $2.47 billion
Based in Texas, LGI Homes (NASDAQ:LGIH) is a homebuilding company specializing in constructing affordable, entry-level single-family homes in desirable communities across the United States.
Home BuildersTraditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, LGI Homes's 7.4% annualized revenue growth over the last five years was mediocre. This shows it couldn't expand in any major way and is a tough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. LGI Homes's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 11.3% annually.
We can better understand the company's revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. LGI Homes's backlog reached $553.6 million in the latest quarter and averaged 15.4% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn't secured enough new orders to maintain its growth rate in the future.
This quarter, LGI Homes missed Wall Street's estimates and reported a rather uninspiring 6.6% year-on-year revenue decline, generating $602.5 million of revenue. Looking ahead, Wall Street expects sales to grow 36.6% over the next 12 months, an acceleration from this quarter.
Operating MarginLGI Homes has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 14.6%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of well-managed operations if they're high when gross margins are low.
Analyzing the trend in its profitability, LGI Homes's annual operating margin decreased by 3 percentage points over the last five years. Even though its margin is still high, shareholders will want to see LGI Homes become more profitable in the future.
This quarter, LGI Homes generated an operating profit margin of 11.2%, up 1.1 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
LGI Homes's unimpressive 7.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. LGI Homes's two-year annual EPS declines of 30.5% were bad and lower than its two-year revenue performance.
In Q2, LGI Homes reported EPS at $2.48, up from $2.25 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects LGI Homes to grow its earnings. Analysts are projecting its EPS of $8.23 in the last year to climb by 24.8% to $10.27.
Key Takeaways from LGI Homes's Q2 Results We enjoyed seeing LGI Homes exceed analysts' EPS expectations this quarter. On the other hand, its revenue unfortunately missed and its backlog fell short Wall Street's estimates. The company also lowered its full year outlook for home closings. Overall, this was a mediocre quarter for LGI Homes. The stock remained flat at $105 immediately following the results.
