Lennar Missed Revenue Estimates. The Stock Is Down.

Home construction fell more than expected in August, with housing starts sliding to the lowest since May. (Bing Guan/Bloomberg)

Lennar stock was falling after the company reported third-quarter earnings that missed analyst expectations. The builder’s margin narrowed more than expected in a tough housing market.

Lennar earned $2.29 a share, or $2.00 excluding mark-to-market gains on technology investments, on $8.8 billion in revenue. Analysts had expected earnings of $2.10 on revenue of just under $9 billion, according to FactSet.

However, Lennar’s gross margin, a closely watched metric at a time when home builders are cutting prices and offering buyer incentives to sell homes, was 17.5%, shy of consensus estimates calling for 17.8%.

The stock was down 2.9% shortly after the earnings release.

Investors had been looking to Lennar’s earnings for signs that the worst was over for builders and their profit margins. Builders have been pumping the breaks on construction and offering plenty of incentives to sell homes in a slow housing market, census and industry data show.

The company used buyer incentives, such as mortgage rate buy-downs, to keep homes selling, said Lennar co-CEO Jon Jaffe.

Lennar reported 23,004 new orders, more than the 22,522 consensus. It delivered 21,584 homes to buyers, fewer than the 22,414 analysts were looking for.

To make sales in a tough housing market, builders like Lennar offer buyers discounts and deals. In a September survey of builders, 39% cut prices and 65% offered some sort of incentive, the National Association of Home Builders said this week.

“Housing affordability is hurting buyer traffic for builders, and as a result builders have slowed single-family home construction,” Buddy Hughes, the National Association of Home Builders’ chairman, said.

Lennar expects margins to stabilize at 17.5% in its fourth quarter—lower than the 17.7% consensus—as it switches up its strategy in light of recent changes to financing costs.

“Interest rates remained elevated throughout the third quarter, but then declined towards the quarter’s end. This downward trend, paired with the Fed’s recent rate cut, gives us optimism as we head into the fourth quarter,” Lennar co-CEO Stuart Miller said. “Therefore, we believe that now is a good time to moderate our volume and allow the market to catch up.”

The builder expects to record 20,000 to 21,000 new orders in the fourth quarter, in line with expectations, and deliver 22,000-23,000 homes, fewer than the 25,587 analysts expect.

Lennar will discuss its results on a conference call at 11 a.m. Eastern on Friday.

Write to Shaina Mishkin at shaina.mishkin@dowjones.com