Ryland Misses on Q1 Earnings, Revs

Zacks

The Ryland Group Inc.'s (RYL) adjusted net earnings of 42 cents per share in the first quarter of fiscal 2014 missed the Zacks Consensus Estimate of 44 cents by 4.7% and the year-ago quarter figure of 43 cents by 2.3% due to higher-than-expected tax.

Although total revenue of $489.7 million missed the Zacks Consensus Estimate of $491 million by 0.3%, results shot up 30.7% from the year-ago quarter’s $374.7 million backed by higher new orders.

Ryland Group is one of the largest homebuilders in the U.S., with operations in 14 states. Like other homebuilders such as Lennar Corporation (LEN), PulteGroup Inc. (PHM) and NVR, Inc. (NVR). Ryland has been gaining momentum from the strong housing recovery in the U.S. 

Homebuilding Segment: Revenues of $481.5 million climbed 32.5% year over year on the back of double-digit increase in the number of homes closed and average selling price.

Net sales orders in the quarter totaled 2,186 homes, up 6.6% from the prior-year quarter, bolstered by increased demand during the quarter. Net orders grew 20.5% to $729.4 million. The western region experienced the highest new order gain of 37% compared to the previous year backed by better absorption pace and higher community count. The company witnessed 19.0% year-over-year increase in active communities to 297 in the quarter.

Home closings were up 12.5% to 1,470 homes in the reported quarter compared with 1,307 homes in the year-ago quarter. The company intends to maintain volume growth by focusing on sales in the existing communities and increasing community count.Average closing price increased 18.1% to $327,000 during the quarter due to favorable changes in product mix and lower incentive levels. The increase in average closing prices was highest in Southern California, Las Vegas, Houston and Charleston.

The quarter-end sales order backlog rose 6.6% to 3,342 homes from 3,135 homes at the end of the first quarter of 2013.

With the housing market gaining momentum, most homebuilding companies are investing in building more homes to meet the growing demand. Ryland Group is also aggressively investing in land and development.

Housing gross profit margin improved 170 basis points (bps) to 21.1% during the quarter, driven by a decline in construction costs. Selling, general & administrative (SG&A) expenses declined 90 bps to 13.0% of homebuilding revenues due to higher leverage resulting from revenue growth.

Financial services: The segment revenue slipped 26.7% year over year to $8.2 million due to te ongoing macroeconomic challenges. The segment reported a pre-tax loss of $1.4 million compared to pre-tax earnings of $4.3 million due to decrease in secondary net gain percentage; higher expense related to estimates of ultimate insurance loss liability; increased personnel costs; and a decrease in locked loan pipeline.

Ryland did not give any guidance range regarding revenues or earnings. The company is optimistic about the future of homebuilding and expects the momentum to continue given the recent improvements in employment data with still favorable affordability dynamic and the positive trends.

Ryland Group carries a Zacks Rank #4 (Sell).

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