Ryland posts increase in second-quarter earnings New strategy pays off for homebuilder

July 26, 1996|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Ryland Group Inc. reported sharply higher second-quarter earnings yesterday, reflecting a new strategy of concentrating on profit margins rather than volume.

The Columbia-based homebuilder and finance company said consolidated earnings rose to $5.4 million, or 31 cents per share, compared with a loss of nearly $1 million, or 9 cents per share, in its continuing operations during the same period last year.

For the first half of the year, consolidated earnings grew to $6.4 million, or 34 cents per share, after suffering a loss of $2.4 million, or 22 cents per share, from continuing operations in last year's first half.

During the second quarter last year, Ryland sold its institutional mortgage securities administration business.

The nation's third largest homebuilder had set its strategy in hopes of improving building operations.

`Our financial performance is starting to reflect the results of the many initiatives we have taken to improve profitability," said R. Chad Dreier, chairman and chief executive officer.

The company has attempted to strengthen management and develop more of its own land rather than buying options on land under the control of other developers, said company spokesman Anne Madison.

"The whole idea with Ryland has been getting the homebuilding margins up, making more money as a homebuilder, and they've finally started doing that," said Matthew V. Roswell, a Legg Mason Wood Walker Inc. analyst who follows Ryland.

In the homebuilding segment, pre-tax earnings rose, to $9.6 million in the second quarter, compared with a pre-tax loss of $4.7 million last year, and to $11 million in the first half, compared with a pre-tax loss of $8.9 million last year. But pre-tax earnings fell sharply in the financial services segment, from $6.3 million to $2.5 million in the second quarter, and from $11.8 million to $5.7 million during the first half.

Gross profit margins rose for the third consecutive quarter, on a year to year basis, averaging 13.7 percent for both the quarter and first half. That was up from 11.3 percent and 11.5 percent averages during the same periods last year. Company officials said profits had suffered from the sale of older inventories in the California and mid-Atlantic regions.

Roswell attributed the increases to changes in land development strategy, better pricing of homes and tighter control of costs. Selling and administrative expenses as a percent of revenues declined to 9.6 percent for the second quarter and 10.3 percent for the first half of the year, the company said. The improved profit margins -- as well as pre-tax gains of $3.7 million from land sales -- led to increased pre-tax earnings in homebuilding, the highest quarterly pre-tax earnings for homebuilding since 1990, Drier said.

Pub Date: 7/26/96

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