Ryland Homes' earnings leap 128% Turnaround continuing, helped by firm sales

Homebuilding

July 24, 1998|By Kristine Henry | Kristine Henry,SUN STAFF

A strong housing market and more attention to costs are helping the Ryland Group Inc. maintain the turnaround it saw at the end of last year.

The Columbia-based homebuilder, which suffered sluggish sales in 1997, said yesterday that earnings in the second quarter were $8.8 million, or 58 cents a share, a 128 percent jump from the $3.9 million it reported for the year-ago quarter. Revenue in the quarter, which ended June 30, increased 6.5 percent to $426 million.

"It's a combination of everything we've talked about for a long time -- better land positions, better floor plans and more attention to direct costs," said R. Chad Dreier, Ryland's chairman and chief executive. "And, frankly, I'd be remiss if I didn't say the market has been very strong and we've been able to sell without so many incentives."

The company's gross profit margin increased to 15.3 percent from 13.2 percent in the corresponding period last year. It was the third straight quarterly increase.

"They blew away the Street more than anyone could have imagined," said Ivy Zelman, an analyst at Credit Suisse First Boston.

"Their profit margins are up more than anyone thought, and they've done a good job at managing their growth opportunities."

The average closing price of Ryland's homes decreased from $182,000 to $179,000, an indication of the company's increased attention to lower-priced homes.

"Our strategy is one-third entry-level, one-third move-up and one-third second move-up," Dreier said.

"When I came here in 1993, I thought we needed to be more balanced, and in the last two years that's been our focus."

Closings for the quarter totaled 2,210, a 6.6 percent increase.

Sales in the mid-Atlantic region, once a strong area for Ryland, continued to decline, dropping 15 percent to 256. Sales in this region made up 11.6 percent of the total, compared with 25 percent two years ago.

"Three years ago, we decided to reallocate our assets to the west and south, and that accounts for the shift," Dreier said. "We're here, and we're going to be here, but, frankly, there's a lot of activity in other parts of the country."

Nationwide, new orders increased 6.9 percent to 2,470, and the backlog of homes sold but not closed on rose 20 percent to 4,009.

For the six months that ended June 30, net earnings increased 141 percent to $13.5 million, and revenue climbed 4.5 percent to $762 million.

"We think the trends are all going in the right direction, and we're still positive about the economy," Dreier said. "But we're cautious about the future, although I think we're well positioned."

Ryland gained 44 cents a share yesterday, closing at $25.75.

Pub Date: 7/24/98

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