Ryland Group Inc. said Thursday that orders for its new homes slumped 9% in the fourth quarter, causing its shares to plunge 12% and dragging down other home building stocks as well.
Calabasas-based Ryland, one of the nation's largest home builders, said the dip in orders would not prevent it from achieving record profit in 2003. Wall Street is expecting the company to earn $8.72 a share, or about $215 million, on a 9% gain in sales in the year ended Dec. 31. Ryland reported a $185-million profit in 2002.
The downturn in orders occurred primarily in Houston and Dallas, where the economy has been softer than in California, said Gordon Milne, Ryland's chief financial officer.
Milne said that the half-percentage-point climb in mortgage rates during the last six months had not affected sales. Activity in most of the company's 28 markets continues to be strong, and Thursday's announcement of reduced orders did not justify the drop in stock prices for Ryland or builders, he said.
"The bears are out there looking for negative housing news, and they took the opportunity today to sort of jump in," he said.
Indeed, a Standard & Poor's index of 13 home building stocks slid 4.3% on Thursday, bringing its year-to-date downturn to 8.2%. The index rose 97% in 2003.
Ryland shares were down $10.16 to $72.89 on the New York Stock Exchange. Shares of two other Southland builders, Los Angeles-based KB Home and Irvine-based Standard-Pacific Corp. each fell 4%; KB to $66.31, Standard Pacific to $45.57.
For 2004, Ryland said it would earn more than $9.50 a share, which would be a 9% increase from the estimate for 2003, but less than the $9.64 a share that Wall Street was looking for. First-quarter profit should be about the same as the 2003 first period when Ryland reported earnings of $1.43 a share, Milne said. Most of this year's profit increase is expected in the second half of the year. The company is scheduled to report fourth-quarter and year-end results for 2003 on Jan. 22.
Large home builders have thrived during the last three years, buoyed in large part by low interest rates and a desire among investors to own tangible assets.
Since early 2001, the nation has lost 3 million jobs yet built 3.5 million single-family homes, said Stephen Percoco, an analyst at Lark Research in Rahway, N.J. He said the imbalance between those statistics couldn't go on indefinitely.
Several factors have offset the job losses, said Percoco, but they probably are temporary stimulants. Among them: low interest rates, an increase in sales of vacation homes, plus a general shift among investors' assets from stock to real estate.
Still, strong demand to buy homes may continue in the near term, Percoco said, especially if the economy improves enough to put many back to work.
"If interest rates stay low and we do get a pickup in job growth, we could coast along at this level for a while," he said. "If rates move up any significant degree, I believe that will result in a decline in housing demand."
The 12% drop in Ryland's stock was the largest since January 2000 and shaved $250 million off its market value, to $1.8 billion. It was particularly painful for Chairman and Chief Executive R. Chad Dreier, whose more than 300,000 shares lost $4.15 million in value.
Ryland executives have dramatically increased their selling of the company's stock over the last year.
Average insider sales reached $11 million per quarter since January 2003, up from an average of $3.6 million per quarter over the last five years, said Kevin Schwenger, a research analyst for Thomson Financial. "That's par for the course for many companies in many industries," he said. "We are seeing a general upturn in selling across the board."