Ryland Group Inc. said yesterday its second-quarter earnings rose 32 percent, but the company's profit margins still lag industry standards, a leading analyst says.
R. Chad Dreier, Ryland's new chief executive, said the company was encouraged by improvements in its homebuilding business, but he said that many of the reforms he's instituted haven't been in place long enough to improve profits.
"We have a long way to go yet," Mr. Dreier said. "You are going to see more [improvement] next year."
Ryland, the third-biggest homebuilder in the nation, said it earned around $7.6 million, or 45 cents a share, during the three months that ended June 30. The Columbia-based company earned $5.7 million, or 33 cents a share, in the same three months of 1993.
The biggest gains came in the company's homebuilding operations, which had lapsed into the red late in the tenure of former CEO Roger W. Schipke. Mr. Schipke resigned last August, more than three months before Mr. Dreier arrived.
The homebuilding operation made $4.7 million before taxes, up from $88,000 in the second quarter of last year. The sluggish 1993 performance in building was obscured by the strong performance of Ryland's mortgage banking business during the refinancing boom.
"We thought the best part was the homebuilding results," Mr. Dreier said.
Big second-quarter sales gains in the Midwest, California and Texas offset continued weakness in Ryland's traditional stronghold in the mid-Atlantic states and the Southeast. Ryland had 3,751 homes on order at the end of the quarter, up from 3,243 a year ago, with big backlogs in Phoenix and Denver, as well as in California and Texas.
Pretax earnings for Ryland Mortgage Co. fell to $12.3 million from $14 million in last year's second quarter, but last year's results included $2.4 million in pretax gains from the sale of called collateral. Mr. Drier said the company has laid off almost 100 people as demand for mortgage loans has fallen off. The company closed one loan office in Harford County, Ryland spokeswoman Laura Charping said, but most of the 14 employees will be offered other jobs.
Lawrence Horan, an analyst with Prudential Securities Inc. in New York, said the quarterly per-share results were 1 cent higher than his estimate. Ryland stock fell 37.5 cents yesterday, to close at $18.625.
Mr. Horan said the results show Mr. Dreier still has a long way to go to make Ryland the Wall Street favorite it was in the late 1980s. He said Ryland's profit margin in home building was only 1.3 percent of sales during the quarter, below the 5 percent posted by Centex Corp. of Dallas, the nation's biggest builder.
Mr. Dreier told an analyst meeting in Baltimore June 1 that he has loosened Ryland's land buying policies, going away from an extremely conservative stance that left Ryland unable to build in choice locations as the new home market recovered in 1992 and 1993. He is also cutting costs by centralizing purchasing to get better discounts from suppliers, pushing subcontractors harder for lower prices and improving marketing and customer service.
Yesterday, he said only the marketing changes have shown up in the results so far.