Changes at Ryland boost bottom line


The Ryland Group Inc. yesterday reported strong earnings for the third quarter and nine-month periods, signaling that changes the homebuilder made earlier this year are beginning to boost its bottom line.

The Columbia-based company earned $8.4 million, or 50 cents a share, on revenue of $447.8 million in the third quarter that ended Sept. 30. In the same period last year, Ryland lost $22.6 million, or $1.52 a share, on revenue of $376.6 million.

In the first nine months of 1994, Ryland generated net income of $22.2 million, or $1.31 a share, on revenue of $1.2 billion, vs. a net loss of $10.3 million, 80 cents a share, on revenue of $1.04 billion in the comparable period in 1993.

Ryland's homebuilding results improved most on the West Coast, especially in California, where Ryland was forced last year to take a $45 million charge because of losses on landholdings.

Through the first nine months, Ryland's settled home sales and orders in California more than doubled from a year ago, to 858 and 996, respectively.

"The company continues to move ahead, despite the hike in interest rates," said R. Bentley Offutt, an analyst who follows Ryland for Offutt Securities. Another promising sign, he said, is that prices for new Ryland homes are up about 7 percent, reflecting the start of new developments.

"But it's going to take them a couple of years to work through their problems in California," he said. "Overall, the company is in transition."

Ryland, the nation's third-largest homebuilder, earlier this year embarked on an effort to improve its marketing, land acquisition policies, construction costs with contractors and home designs, at the behest of R. Chad Dreier, president and chief executive since November 1993.

Mr. Dreier's actions came in response to criticism that Ryland refused to purchase land until just before building, and therefore was forced to pay higher amounts than other builders; failed to press contractors for volume discounts; and produced product lines with few architectural and amenity packages desired by consumers.

For the nine-month period, Ryland generated increases of 13 percent in new orders nationwide, to 7,364 homes, while settlements rose by nearly the same percentage, to 6,620 homes. In the third quarter, new orders increased about 5 percent; settlements rose by 16 percent.

Despite the gains, many analysts pointed to the company's continued reliance on its financial services division for operating income as a sign that the shift to homebuilding may take longer than expected.

"I thought homebuilding would have accounted for more of their operating profit," said Ivy Schneider, a Salomon Bros. Inc. housing industry analyst. "While the earnings swing was impressive, and I'm still buying the stock because I'm optimistic about their earnings looking forward and the effort Ryland is making, it was disappointing."

Ryland's financial services division reported pretax earnings of $14.1 million in the third quarter, a 44 percent gain over the comparable 1993 period, despite nearly half the mortgage originations of a year ago. The originations declined primarily because of higher interest rates.

In the nine-month cycle, financial services posted pretax earnings of $38.3 million, vs. $43 million last year.

For the nine months, homebuilding posted pretax earnings of $8.5 million, compared with the 1993 period's pretax loss of $48 million.

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