Majestic Research

Reuters

Ryland Group Posts Fourth-Quarter Loss

Published: January 23, 2008

Ryland Group Inc, the No. 8 U.S. home builder, reported a quarterly loss on Wednesday compared with a year-earlier profit, partly because of large write-offs for land and inventory values, and an income tax charge.

The U.S. housing market has been in a tailspin for more than two years, hounded by falling prices and evaporating demand. Groundbreaking on new U.S. homes last month was the slowest since 1991 and fewer building permits were issued than any time since 1993, pointing to a deepening housing crisis. Housing starts fell to their lowest starts since May 1991.

For the fourth quarter, Ryland posted a net loss of $201.9 million, or $4.80 per share, compared with a profit of $87.2 million, or $1.98 per share.

Ryland’s quarterly results include charges for write-offs for inventory and property values of $242.7 million and an income tax charge of $75.2 million.

Analysts had expected the company to post a loss of 48 cents, which would be compared to a loss, excluding the income tax charge, of $3.01 per share, according to Reuters Estimates.

But analysts have had difficulty projecting home-builder losses because the home and property values continue to decline and builders revalue them quarterly.

Home-building revenue for the Calabasas, California-based home builder fell 37.2 percent to $828.8 million, as sale closings fell 29.6 percent to 3,061 homes and the average selling price fell 9.7 percent to $269,000.

Gross profit margins were 13.9 before the charges and a negative 15.3 percent after.

In response to the deteriorating market, U.S. home builders have shifted their focus from profit and growth to survival, focusing on generating cash to pay off debt and getting rid of the excessive land and inventory they accumulated during the boom times.

“In this type of market, they’re less concerned about the accounting profit and they’re trying to generate positive cash flow by getting this inventory off their books and the banks want them to turn the land and the housing into cash flow so they’re going to be extremely aggressive with pricing,” Majestic Research analyst John Tomlinson said.

Accordingly, the company ended the quarter with 823 houses started and unsold, down 52.8 percent.

Ryland generated $312.2 million in operating cash flow in the quarter and used part of that to pay down $144.2 million of debt. It ended the quarter with a cash balance of $243.6 million.

New orders during the quarter fell 7.1 percent to 1,596, and the average value fell 14.4 percent, reflecting the generous incentives builders are offering to buyers.

In after-hours activity, Ryland shares were at $30.97, down from their closing price of $31.25.