Ryland's earnings slide, a victim of housing slump

October 30, 1990|By Timothy J. Mullaney

The Ryland Group Inc. said yesterday that its third-quarter earnings per share fell almost 49 percent compared with the third quarter of last year, and the Columbia-based homebuilding company says profits will remain slim in coming months because the nationwide housing slowdown hasn't reached bottom yet.

Ryland earned $5,750,000, or41 cents a share, during the quarter that ended Sept. 30, compared with 80 cents a share in the third quarter of 1989. The reason: slow sales of new homes, especially in the mid-Atlantic region and in California.

Two of the three securities analysts contacted yesterday said the quarterly results were slightly weaker than they had expected. Both Michael Mead of Legg Mason Wood Walker Inc. in Baltimore and Lawrence Horan of Prudential-Bache Securities Inc. in New York had expected Ryland to earn 45 cents a share for the quarter.

Ryland's stock price didn't react much to the news, closing down12.5 cents, to $9.875 a share.

Ryland's year-to-year earnings declines could get even bigger in quarters to come, since the number of new homes ordered during the third quarter fell 35 percent. Homebuilders usually take orders for new homes in one quarter and make money on them in the next quarter, after a customer receives a mortgage and closes the purchase of the home.

Ryland's profits fell by almost half in the third quarter, when the company settled sales of 14 percent fewer homes than in the third quarter of last year. In coming quarters, this quarter's drop in new orders should translate into major declines in settlements -- and in revenue for Ryland.

"The next two quarters will continue to show a lot of weakness," Mr. Mead said. "This is historically a very cyclical business, and we're in full cycle right now."

"We haven't seen a strengthening of the market yet overall," said Nancy L. Smith, Ryland's corporate secretary. She blamed the poor sales on low consumer confidence, which she said has been hurt by events in the Middle East and by fears of a recession.

Weak sales in the mid-Atlantic region and California more than offset relative strength in markets such as Texas and the Midwest, she added. New orders were off by60 percent for Ryland's California operations and 42 percent in the mid-Atlantic region.

"Those areas are down more than the areas that are up are up," Ms. Smith said.

The weakness in Ryland's profits probably will continue into next year, several analysts said. Barbara Allen of Kidder, Peabody & Co., an analyst who usually has been sympathetic to Ryland, estimates that Ryland will earn $1.75 to $2 a share next year if there is a recession.

Mr. Horan, who has been more bearish on Ryland, forecast that the company will earn about $1.50 a share.

Ryland earned $3.25 a share in 1989 and has earned $1.27 a share for the first three quarters of this year, down from $1.93 a share in the first three quarters of 1989.

Mr. Mead said Ryland's weak earnings reflect problems in the economy rather than specific mistakes by Ryland's management. He said Ryland's conservative financial stance positions it well to survive the slowdown and benefit when the homebuilding industry recovers.

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