Ryland profits rise by 10% in quarter

February 04, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

Bolstered by a 26 percent gain in orders for homes to be delivered early this year, Ryland Group Inc. of Columbia said its fourth-quarter profits rose 10 percent.

But the news caused a muted reaction on Wall Street, where the stock backed off from a 52-week high reached Wednesday after a Salomon Inc. analyst recommended the stock of the nation's third-biggest homebuilder.

Ryland shares closed at $24.625, down 62.5 cents, on the New York Stock Exchange.

Ryland said it earned $7.6 million, or 45 cents a share, during the three months that closed 1993. It made $6.9 million in the fourth quarter of 1992.

Ryland lost $2.7 million over the whole year, compared to a $27 million profit in 1992, fueled by a $45 million third-quarter write-down, most of which was a markdown of California land bought at inflated prerecession prices.

"They [fourth-quarter results] were about what I expected, or a little better," said James Wilson, of who follows Ryland for Montgomery Securities of San Francisco.

He said the company's homebuilding operation, which has been criticized for bouncing back from the recession less effectively than major rivals, did better than expected, while the mortgage banking unit that has sustained Ryland through recent missteps performed slightly below expectations.

The pattern of a strengthening homebuilding operation and a mortgage business hard-pressed to live up to strong recent performance will continue during the first part of this year, analysts said.

They expect Ryland's overall first-quarter profit to be less than in early 1993 because of one-time revenues realized from sale of mortgage company assets last year.

However, the 26 percent gain in orders for new homes will bolster a homebuilding operation that lost money through most of last year before returning to the black in the fourth quarter.

The orders will turn into revenues only when the homes are completed and actually sold, which typically occurs one or two ++ quarters after the order.

The increase in early 1994 homebuilding profits "will definitely be more modest" than the 26 percent late 1993 order gain, company spokesman Lawrence Cates said. He said the company is comfortable with estimates that it will earn $2 a share this year, still well below its 1980s highs.

"I don't expect to see any improvement in profit margins [in homebuilding] until probably the second quarter," said David L. Beeghly, an analyst at Scott & Stringfellow in Richmond, Va.

He said the surge in fourth-quarter orders largely reflects the company's efforts to unload, at reduced prices, excess inventory in southern California and the Baltimore-Washington corridor.

Mr. Cates and the analysts agreed that the improved results do not yet reflect any changes made by Ryland's new president and chief executive, R. Chad Dreier, who arrived in November.

Mr. Cates said changes in management and production policies will affect profits beginning in the second half of 1994.

Ryland Group Inc.

.. .. .. .. .. .. .. .. ..Ticker .. .. ..Yesterday's

.. .. .. .. .. .. .. .. ..Symbol .. .Cls... .. .Chg.

.. .. .. .. .. .. .. .. ...RYL .. .. .24 5/8 .. .. ...- 5/8

Period ended

12/31/93 .. .. .. .. ..4th qtr. .. .. ..Year ago .. ..Chg.

Revenue .. .. .. .. ...$430,225 .. .. ..$395,848 .. .+8.7%

Net Income .. .. .. .. ..$7,607 .. .. .. .$6,931 .. .+9.8%

Primary EPS .. .. .. .. ..$0.45 .. .. .. ..$0.40 ...+12.5%

.. .. .. .. .. .. .. ..12 mos. .. .. .. .Year ago .. .Chg.

Revenue .. .. .. . ..$1,474,429 . .. ...$1,442,321 ..+2.2%

Net Income .. .. .. ...$(2,656) .. .. .. .$27,520 .. ..N/A

Primary EPS .. .. .. ...$(0.34) .. .. .. ...$1.66 .. ..N/A

Figures in thousands (except per share data)

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