The Ryland Group, Calabasas, Calif. (NYSE:RYL) on Wednesday after market close reported a net loss of $10.7 million (-$0.24 per diluted share) for the second quarter ended June 30. The results compared to a net loss of $21.8 million ($0.49 per diluted share) for the 2010 quarter.
The loss included $5.8 million in impairments and write-offs, compared to charges that totaled $8.6 million for the quarter ended June 30, 2010. Analysts were expecting a loss of 21 cents per share, not including charges.
Home building revenues fell 39.9% to $217.9 million for the quarter on a 41.3% decline in closings to 884 units, partly offset by a 2.9% increase in the average closing price to $245,000.
New orders were up 11.2% to 1,065 units; new order dollars rose 15.1% to$265.6 million. The monthly sales absorption rate fell to 1.6 homes per community from 1.8 for the quarter ended June 30, 2010. Sales incentives and price concessions totaled 11.5% for the second quarter of 2011, up from 11% for the same period in 2010.
Backlog at quarter's end was up 20.3% to 1,646 units with a dollar value of$416.5 million, a 21.5% increase from June 30, 2010.
Active Ryland communities increased to 219 at the close of the quarter from181 communities a year earlier.
Housing gross profit margin was 14.5%, excluding impairments, down from 15.2% in the previous quarter and 15.9% in the prior-year quarter. The margin included a $3 million one-time recovery of Chinese drywall warranty costs from third parties. Including inventory and other valuation adjustments, housing gross profit margin was 12.7%, down from 14.4% in the prior-year quarter.
SG&A declined to 13.2% of home building revenues, down from 17.3% for the first quarter of 2011 and up from 10.4% for the second quarter of 2010.In dollar terms, SG&A was down $9 million from the proir-year-quarter to$28.7 million.
The financial services segment reported pretax earnings of $2.1 million, compared to a pretax loss of $634,000 for the same period in 2010.
During the quarter of 2011, Ryland used $41.8 million of cash for operating activities, provided $46.9 million of cash from investing activities and used $25.0 million of cash for financing activities. In April, Ryland paid$28.2 million to repurchase $27.5 million of its 5.4% senior notes due 2015.
Ryland ended the quarter with $613.5 million in cash, restricted cash and marketable securities, down from $739.2 million at yearend 2010. The net debt-to-capital ratio was 33.6% at June 30, 2011, compared to 22.0% at the close of 2010.
Analysts were surprised by the results. Adam Rudiger at Wells Fargo wrote to investors, "With backlog up 12% sequentially, we expect further margin improvement next quarter, which should help narrow reported losses. While RYL saw orders increase vs. last year, we note that orders per average community fell 8% yr/yr on top of a 28% decline last year demonstrating how significantly depressed demand remains. Overall, orders and expense leverage were better than we expected, which we view positively, but RYL still needs a significant steady improvement in demand in our opinion, in order to restore sustainable profitability, given what we believe is limited scale in many of its markets."
Stephen East at Ticonderoga Securities was more upbeat. In his note, he wrote, "Inline results would not normally provide meaningful optimism, however, in this worsening environment, we view RYL's results very positively. Orders were excellent given that community count was flat while the gross margin and SG&A were better than expected. In other words, most of what RYL could control, they did a very solid job."
Michael Rehaut at J.P. Morgan also was positive: "We view these results as a modest positive, given the better-than-expected orders and operating margins, and believe the stock should have a similar modestly positive reaction."
David Goldberg at UBS said in his note that "Despite the uncertainty in the macro environment, we still believe that demand for new homes has reached a bottom and that the sales pace is unlikely to decline beyond normal seasonal trends ... Given its robust liquidity [and] limited legacy land position, we believe Ryland is well positioned to outperform as housing improves."