Home Builder Ryland Cuts Its 2006 Earnings Estimate

By Janet Morrissey
From

Ryland Group Inc. reported net income fell 9% and orders plummeted 39% in the second quarter as the home builder, like others in the sector, struggles with a deteriorating housing market.

And in a sign that the builder doesn't expect the weak trends to end anytime soon, Ryland cut its earnings estimate for 2006 to a range of $7.75 to $8.25 a share, down from the revised estimate it gave in May for earnings of $8.50 to $9 a share.

Early Wednesday, the Calabasas, Calif., home builder reported revenue of $1.2 billion in the second quarter, up 3.4% from $1.1 billion a year ago. Net income totaled $94.8 million, or $2.03 a share, down from $104.3 million, or $2.10 a share, a year ago. The latest results were slightly better than Wall Street expected, exceeding Thomson First Call's estimate of $1.93 a share. They topped Banc of America Securities analyst Daniel Oppenheim's projection of earnings of $1.80 a share.

The company's gross profit margins from home sales contracted to 23.2% from 24.5% a year ago, which caused the earnings decline. The company attributed the weaker margins to increased discounts and incentives as well as to write-downs on inventory. That was partly offset by higher prices as the average price rose 8.5% to $295,000 on homes closed in the quarter.

Orders, a key metric for forecasting future revenue the company will receive when a home is delivered two or three quarters later, fell 39.4% -- a steeper decline than analysts had been forecasting. Wachovia analyst Carl Reichardt had expected orders to be down 35%.

Last week, D.R. Horton Inc., one of the nation's largest home builders, said it expects fiscal third-quarter profit to be lower compared with a year ago. While most home builders are suffering from the housing slowdown, D.R. Horton's troubles are significant because the builder has been able to weather previous downturns with ease.

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