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Ryland again has dismal quarter Revenues drop 9%; analysts question company's direction


The Ryland Group Inc. turned in its third consecutive disappointing quarter of 1995 yesterday, raising questions among several industry analysts about the company's direction.

The Columbia-based firm and the nation's third-largest homebuilder reported that net income for the period ended Sept. 30 dipped to $678,000, or 1 cent per share, a significant decline from the $8.4 million earned in the comparable quarter in 1994.

Third-quarter revenues also dropped by 9 percent, to $402.6 million. On a pre-tax basis, homebuilding earnings fell by 93 percent, to $297,000, mainly because of a 9 percent drop in home closings, to 2,263. Ryland's financial services segment income declined to $3.8 million, or 67 percent.

"I'm really disappointed at the company's inability to turn around after nearly two years," said R. Bentley Offutt, president of Offutt Securities, a local investment firm. "A lot of their problems extend throughout the industry, but Ryland has had a continual cascade of disappointments."

Most analysts had projected Ryland would earn either 5 cents or 6 cents per share in the quarter.

Since November 1993, when R. Chad Dreier became Ryland's president and chief executive, the company has attempted to restructure by cutting costs and inventory, and introducing new models and option packages.

But Ryland has faced stiff competition -- especially in its core Mid-Atlantic region -- which has negatively affected its gross margins on sales, a key gauge of a homebuilder's financial health.

In one of the company's few bright spots in the quarter, gross margins increased to an average of 12.6 percent, up from 11.3 percent in the second quarter of this year but flat as compared with a year ago. "As our margins go up, I think you're seeing the first evidence that our strategies are working," said Michael D. Mangan, a Ryland executive vice president and its chief financial officer. "We're all impatient and would like things to turn around faster, but realistically it takes time. We're in the black, and taking steps in the right direction."

Mr. Dreier said in a statement that the company is entering new markets and strengthening its balance sheet, and as a result expects Ryland's homebuilding segment "to report improved profitability in the fourth quarter of this year."

For the first nine months of 1995, Ryland reported net income of $21.1 million, $1.24 per share, a 5 percentage point decline from a year ago. The nine-month figure, however, included a $19.5 million after-tax gain from the sale of its institutional financial services segment in April. Without that gain, its nine-month net income would have been $1.6 million.

Revenues between Jan. 1 and Sept. 30 also dipped slightly, to $1.13 billion. Although pretax losses for year-to-date homebuilding and financial services segments weren't as severe as in the quarter, they nonetheless amounted to precipitous declines vs. a year ago.

Gross margins in the nine-month period declined to 11.8 percent, from 12.7 percent last year, primarily because of a weak first quarter.

Ryland's outstanding sales contract figure, another indication of growth, is almost identical to that of a year ago, at 3,453. Those contracts carry a value of $591.6 million.

"The trend looks good in regards to gross margins, and that's the key to turning the company around," said Matthew V. Roswell, a Legg Mason Wood Walker Inc. analyst who tracks Ryland. "The numbers are disappointing, but they're doing the right things."

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