Despite new orders coming in ahead of estimates, analysts were overwhelmingly disappointed with The Ryland Group's 1Q2009 performance, which culminated in a net loss of $75.3 million, or $1.76 per share, for the quarter. Most of the analysts' beef was focused on the company's 6% gross margins, excluding impairments and write-offs, which one analyst characterized as "unusually depressed."

Company president and COO Larry Nicholson, who will replace Chad Dreier as chief executive at the end of May, fingered three culprits with respect to the lower margins:

* Foreclosure resales

* Community close-outs

* Spec sales

He argued foreclosures continued to pressure pricing while a need to exit 31 communities to reduce SG&A also created some sales urgency that was reflected in pricing; Nicholson told analysts that margins at close-out communities could be as low as -4% or -5%. In addition, spec sales, which generally have lower margins than dirt sales, constituted a higher than usual percentage of closings, he said.

However, several analysts questioned the company's spec strategy, asking whether the company would ramp up its spec production as the window to take advantage of the $8,000 federal home buyer tax credit inches closer to expiration; to be eligible for the tax credit, buyers must close on their homes before Dec. 1, 2009.

The company decreased its spec count roughly 22% sequentially from 4Q2008 to end the quarter with 501 specs. Roughly half of those were labeled as finished, leaving the company with approximately one finished spec per community.

"Our cycle time is about 95 days, so we still have some time before we get to the drop dead date," Nicholson said.

Flimsy margins aside, Nicholson pointed out that there were some "bright spots" during the quarter as the company's northern and Texas regions saw some improvement. The top performing divisions were Washington, D.C., Houston, Central Texas, and Indianapolis, he said. Moreover, seven of the company's 19 divisions--Atlanta, Baltimore, Central Texas, Charleston, Dallas, Minneapolis, and Washington, D.C.--reported an uptick in sales so far in the second quarter.

Some analysts also were curious as to the company's capital management strategy. During the first quarter, the company repurchased $47.6 million of its senior notes for $35.9 million in the open market during the quarter, realizing a related gain of $11.4 million. However, executives kicked off the call with the announcement that the company had finalized a bond deal today that would up the company's cash count to $750 million compared to $213 million at the end of 1Q2008.

CFO Gordon Milne noted, "It's better to secure financing when you don't need it."

He went on to add that essentially swapping out short-term maturities for longer-term maturities gives the company flexibility, allowing it to better deal with whatever the market may be down the road. "It's good capital planning," he said.

When asked what the money would be used for, company executives said, because it was unrestricted, it could be used for land purchases or investment in its joint venture with Oaktree Capital. However, when analysts suggested that the cash might portend an M&A deal a la Pulte/Centex, Nicholson responded with a prickly, "No."

Nicholson also clarified that the company's joint venture with Oaktree will be a place to park some of the assets the company would like to acquire but not all; the joint venture has an appetite for mostly larger land deals of 500 lots or more. "We need to do some small deals in addition to that, which we will finance from our balance sheet," Nicholson explained.

However, Nicholson noted that executives were still having trouble finding deals that could pencil given that management hasn't altered its hurdle rates any; they still want a 30% internal rate of return and a 20% margin, he said. "What we're seeing mostly are the 'B' and 'C' deals," he said. "I think the 'A' deals have yet to come to market."

Although the Oaktree joint venture hadn't made any investment in any asset purchases--or even note purchases--its managers were setting themselves up to be able to move quickly when the time is right. "We took an important first step in getting in front of banks," he said.