The Ryland Group's fourth quarter earnings call this afternoon started out shaky as technical problems forced executives to start the conference over again. If only starting the quarter over again was that simple.
The company posted a loss of $59.9 million, or $1.40 per share, during the quarter. Home building revenue was down 38.0% from a year ago to $513.5 million for the quarter as closings dwindled and new orders fell off a cliff. The company closed 1,964 homes during the quarter, down 35.8% year-over-year, and recorded 544 new orders, marking a fall off of 65.3% from the same period a year ago.
"I must say I joined home building in April of 1977, so I have been in the business almost 32 years, and October and November were two of the slowest months I have ever experienced," said CEO Chad Dreier.
Dreier went on to say that the company captured new orders for 165 homes in October, 151 in November, and 228 in December.
The good news was that things were looking up so far for the first quarter of 2009. In an uncustomary disclosure, Dreier provided analysts with a quarter-to-date update on sales. Thus far in January, the company's new contracts for the month were roughly double the amount of contracts secured in October.
Analysts asked if management had implemented any special programs or initiatives that would account for the uptick in new orders.
"I don't think we've done anything specifically in January; January is usually a crappy month," Dreier said.
However, he noted that falling home prices--Ryland's average selling price has fallen to $246,000 from $269,000 a year ago--coupled with low mortgage rates make it an attractive time to buy a home.
"If you're a 30-year-old couple with a kid and want to buy a house, this is a great time to buy," Dreier said. Average monthly payments are dropping below $1,000 a month, he added.
Dreier also noted that, like some competitors, Ryland was offering mortgage rate buy down programs in some markets. But he was quick to note that those programs were not in addition to other incentive offers.
"It's not an incremental incentive," he said. "We all have an array of incentives. ... So, I think we operate with a bucket that says we'd like to give X [dollars to buyers]."
Another decision left up to the company's divisional leaders is whether to retool product. Dreier said the company's divisions were doing some product revamping--from stripping out excess options to redesigning entire product lines--but there was no official program in the league of KB Home's launch of its Open Series of product.
"To say we've done it wholesale--we leave it to the guy in the local division. It's not a one size fits all," Dreier explained.
Dreier said that the company's Mid-Atlantic and Houston operations had a particularly good month, but he said the positive traffic and sales trends expanded beyond those markets.
"It's not like we sold 100 houses in one community in a distressed sale," he said. "It's pretty much around the company."
Although the fourth quarter was abysmal in terms of sales, there were a few highlights. The company's losses had slowed from $202.9 million in 4Q2007 to $59.9 million in 4Q2008. Write downs, write offs, and goodwill and joint venture impairments also were more palatable at $55.1 million, roughly a quarter of what those charges were a year ago. Standing inventory also fell by 22.5% year-over-year; the company ended its fourth quarter with 639 inventory units, of which 420 were finished.
Moreover, gross margins--including land-related charges--had moved from negative to neutral; for 4Q2008, Ryland's gross margins were 0.1%. And the company's cash position was further enhanced this quarter; it ended the year with a $423.2 million cash balance.
In fact, management felt good enough about its balance sheet strength to repurchase $46.6 million in senior notes at a significant discount in January.
"We felt we had some extra cash and it would be a good return on our money," CFO Gordon Milne said of the repurchase.
That move was in addition to a decision to amend its $550.0 million revolving credit facility, reducing its borrowing capacity to $200.0 million and changing covenants related to consolidated tangible net worth, leverage ratio, borrowing base, and liquidity reserve requirements.