The builder earnings parade continued today with Ryland reporting this morning.
The company beat estimates on EPS and revenues and reaction to the report was generally positive. J.P. Morgan’s Michael Rehaut said EPS was above his estimates, orders were below, and gross margins were in line. UBS’s Susan Maklari called the results “impressive.”
“The outperformance was driven by home building revenue growth of 13% (+7% in units and +5% in ASP) that was well ahead of our 7% forecast (+4% in units and +3% in ASP) adding ~$0.04 to the quarter; better-than-expected results in its financial services business also contributed ~$0.04; and a lower tax rate versus our 38% estimate added to EPS by ~$0.03,” she wrote.
Evercore ISI's Stephen East wasn't as impressed with Ryland's results though. "Ryland's headline number is solid, but the key metrics underlying are disappointing," he wrote. "Exiting the first quarter, Ryland was one of four builders that essentially stated the gross margins would build through the year, with Ryland specifically getting back to flat gorss margins for the full year. This quarter's ~70 bps sequential increase implies very strong second half margins (22%+) that likely cannot be hit."
With the Stanpac merger expected to close in the fall, the integration of the two companies will take center stage in the coming quarters.
“Regarding the announced merger of equals between Ryland and Standard Pacific, the conservative nature of both these management teams leaves us feeling comfortable about their continued focus on profitability and driving long term shareholder value,” she wrote. “We'd note that Ryland has completed numerous smaller acquisitions as the recovery has taken hold, giving it experience in successfully integrating the operations of two entities.”
Here are some other highlights from the company’s earnings release:
- Net income increased 33.0 percent to $42.6 million, or $0.75 per diluted share, for the second quarter of 2015 from $32.0 million, or $0.57 per diluted share, for the second quarter of 2014.
- Pretax earnings rose 27.5 percent to $66.5 million for the quarter ended June 30, 2015, compared to $52.2 million for the quarter ended June 30, 2014.
- Revenues totaled $653.6 million for the quarter ended June 30, 2015, representing a 13.2 percent increase from $577.4 million for the quarter ended June 30, 2014.
- New orders increased 7.1 percent to 2,387 units for the second quarter of 2015, compared to the second quarter of 2014, and new order dollars rose 6.8 percent to $813.0 million for the second quarter of 2015, compared to the same period in 2014.
- Backlog rose 6.4 percent to 4,116 units at June 30, 2015, from June 30, 2014. The dollar value of the Company's backlog was $1.4 billion at June 30, 2015, an 8.3 percent increase from June 30, 2014.
- Average closing price increased 5.4 percent to $351,000 for the quarter ended June 30, 2015, from $333,000 for the same period in 2014.
- Selling, general and administrative expense totaled 10.9 percent of home building revenues for the second quarter of 2015, compared to 11.8 percent for the second quarter of 2014.
- Active communities increased 12.1 percent to 344 communities at June 30, 2015, from 307 communities at June 30, 2014.
- Net debt-to-capital ratio was 45.6 percent at June 30, 2015, compared to 43.3 percent at December 31, 2014.
- Transaction costs related to the proposed merger with Standard Pacific totaled $3.6 million during the second quarter of 2015.