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California and the West

Home Builder Ryland's Profit Falls 9%

July 20, 2006|From Reuters

Ryland Group Inc., the eighth-largest U.S. home builder, said Wednesday that quarterly earnings fell 9% and new orders tumbled 39%, highlighting the deteriorating U.S. home market.

The Calabasas-based company also slashed its full-year forecast for the second time in seven weeks, but its shares rose 7.8%, their largest one-day percentage gain in more than two years, on relief the news wasn't worse and hopes for a pause in interest rate hikes.

"There's going to have to be some really significantly new bad news to make these things fall further," Deutsche Bank analyst Gregg Schoenleber said.

Ryland shares have been hammered more than those of other large U.S. home builders, and most of the bad news already was baked into the company's stock price, Schoenleber said.

Also, investors on Wednesday interpreted comments by Federal Reserve Chairman Ben S. Bernanke as hinting that the Fed might be close to ending its two-year series of interest rate increases.

Ryland said orders for new homes during the second quarter fell to 3,023 from 4,988 a year earlier, while the value of the orders fell 40% to $890 million.

Orders in the West, which saw some of the biggest price increases last year, were down 63%.

"While we knew that eventually there would be a slowdown in housing, this downturn happened quicker than expected," R. Chad Dreier, Ryland's chief executive, said in a conference call with analysts.

Ryland reported second-quarter earnings of $94.8 million, or $2.03 a share, down from $104.3 million, or $2.10, a year earlier.

During the quarter, the company took about $20 million in write-downs for the value of about 300 lots in Riverside County.

But greater-than-expected land sales helped Ryland beat its forecast for earnings of $1.95 to $2 a share, as well as analysts' average forecast of $1.94 as compiled by Reuters Estimates.

In the second quarter, Ryland closed on 3,803 homes, down 5.8% from the previous year. Order cancellations reached 36%, and Ryland used incentives to close deals.

"If you had a contract to buy a house and you wanted to cancel, we would do just about anything we could to keep from you canceling," Dreier said.

Revenue rose 3.2% to $1.2 billion, and home-building revenue increased 3.4%, chiefly because of an 8.5% rise in the average home price to $295,000.

Gross margins dropped to 23.2% from 24.5% a year earlier and are expected to be 22% for the rest of the year, Dreier said.

The company cut its full-year earnings forecast to a range of $7.75 to $8.25 a share, down from a previous forecast of $8.50 to $9.

The forecast includes a charge of 10 cents a share for the early extinguishment of debt.

Shares of Ryland climbed $2.73 to $37.55.

The Dow Jones U.S. home construction index, a barometer of home-building stock activity, rose 4.6%.

The index has lost 47% of its value in about a year, while Ryland's shares have lost 55%.

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