The Ryland Group late yesterday (July 10) said it expected to report a loss of $1.25 to $1.35 per share for the second quarter of 2007, largely due to pre-tax charges of $145 million to $155 million related to inventory impairments and write-offs.
Excluding the impairments, the company said it would have made a proft of between $0.70 and $0.80 per share. The impairments are associated with assets in the Company's operations in Arizona, California, Florida and Nevada.
The company's preliminary analysis of second-quarter data show sales of2,521 units, down 16.6% from the same period last year. Cancellations were down slightly, to 34% of gross orders, from 35.9% during last year's second quarter. Closings totaled 2,461, down from 3,803 units in the second quarter of 2006, a decline of 35.3%.
In a reserach note, Michael Rehaut, the lead home building and building products analyst at J.P. Morgan Securities, wrote, "While the charges represent a 6.3% after-tax hit to equity, slightly more than Lennar's 4% and our outlook for 5% for D.R. Horton, we note that KB Homes had a 7% hit, and moreover, we point out Ryland's charges through the first quarter were well below its peers. Moreover, on core basis (ex-charges), we remain encouraged that Ryland has maintained a solid level of profitability, with second quarter at $0.70-$0.80 (vs. our $0.59E), vs. some of its peers' near-breakeven results. Finally, Ryland's orders fell 17%, nearly in line with our estimate, while its cancellation rate rose to 34% from 28% last quarter."
In a similar note to investors, Raymond James Equity Research noted that Ryland had impaired only $158 million to date during the housing downturn. "With Ryland's preliminary results following similar negative announcements by its peers," the note stated, "we would continue to expect surprisingly high levels of impairment charges and reductions to book value for most builders during the upcoming earnings season. Market conditions, in our opinion, are not likely to improve over the near term."
The Company will release earnings for the second quarter of 2007 on Wednesday, July 25, after the financial markets close.