Calabassas, Calif.- based The Ryland Group (NYSE:RYL) at market close on Wednesday announced a loss of $201.9 million, or $4.80 per diluted share, for the fourth quarter of 2007, compared to earnings of $87.2 million, or $1.98 per diluted share, for the same period in 2006.
Ryland said the loss was due to fewer closings and write-offs and impairments of $242.7 million, as well as an income tax charge of $75.2 million for a deferred tax valuation allowance (FAS 109) during the quarter.It said it generated a positive operating cash flow of $312.2 million for the fourth quarter, which it used, in part, to reduce debt by $144.2 million, including a $25-million reduction of its senior notes and a $119.2-million payoff of its line of credit and other notes. It had a cash balance of $243.6 million as of December 31, 2007; its net debt-to-total capital ratio was 34.6% at yearend.
Revenues fell 36.9% to $854.1 million for the quarter, compared to the quarter ended December 31, 2006. Closings fell 29.6% compared to last year's fourth quarter, to 3,061 units; new orders fell 7.1% to 1,596 units; and inventory of houses started and unsold declined to 823 units at December 31, 2007, a decrease of 52.8% from December 31, 2006. Ryland did not report a cancellation rate.
The home building segments reported a pretax loss of $211.3 million during the quarter, compared to $130.5 million for the same period in 2006.Home building revenues decreased 37.2% to $828.8 million for the quarter, compared to $1.3 billion for the same period in 2006. The average closing price of a home decreased to $269,000 for the quarter, down from $298,000 for the quarter ended December 31, 2006. Home building revenues included$5.9 million from land sales, compared to $23.0 million from land sales for the fourth quarter of 2006, which contributed a net loss of $223,000 and a gain of $6.1 million to pretax earnings for the same periods in 2007 and 2006, respectively.
For the fourth quarter of 2007, new order dollars declined 20.5% to $368.7 million from $463.9 million for the fourth quarter of 2006. Backlog at the end of the fourth quarter of 2007 decreased 31.8% to 2,869 units from 4,206 units at the end of the fourth quarter of 2006. At yearend, the dollar value of the company's backlog was $786.4 million, reflecting a decline of 39.2%.
Gross profit margins averaged 13.9% prior to impairments and write-offs, and negative 15.3% subsequent to these adjustments, for the fourth quarter of 2007, compared to 17.9% for the same period in 2006. Selling, general and administrative expenses, as a percentage of home building revenue, were 10.2% for the fourth quarter of 2007, compared to 8.0% for the same period in 2006. The company blamed the increase on the decline in revenues as well as a rise in marketing and advertising costs per unit. Corporate expenses were $10.9 million for the fourth quarter of 2007, compared to $16.0 million for the same period in the prior year.
The Company's financial services segment, which includes mortgage, title, escrow and insurance services, reported pretax earnings of $16.3 million for the quarter, compared to pretax earnings of $24.9 million for the same period in 2006. The number of mortgages originated was down 31.3% and the average loan size decreased 8.6%.
For the twelve months ended December 31, 2007, the Company reported a consolidated loss of $333.5 million, or $7.92 per diluted share, compared to earnings of $359.9 million, or $7.83 per diluted share, for the same period in 2006. Excluding inventory valuation adjustments and write-offs of $583.4 million; an income tax charge of $75.2 million for a deferred tax valuation allowance; and a goodwill impairment charge of $15.4 million, earnings for the twelve months ended December 31, 2007, would have been $2.49 per share.
The home building segments reported a pretax loss of $425.0 million during the twelve months ended December 31, 2007, compared to $573.1 million in pretax earnings for the same period in 2006. Home building revenues decreased 36.4% to $3.0 billion for the year, compared to $4.7 billion for the same period in 2006. Closing fell 33% to 10,319 units; average closing prices fell from $295,000 to $285,000. Home building revenues for the year included $21.2 million from land sales, compared to $94.3 million from land sales for the same period in 2006.
New orders fell 19.3% year-over-year to 8,982 units, while new-order dollars fell 24.3% to $2.4 billion. Selling, general and administrative expenses, as a percentage of homebuilding revenue, were 11.9% for the year, compared to 9.5% for 2006.
For the year, the financial services segment reported pretax earnings of$40.9 million, compared to pretax earnings of $67.7 million for the same period in 2006. This decrease was primarily attributable to a 34.8% drop in the number of mortgages originated due to a slowdown in the homebuilding market and a slight decrease of 1.8% in average loan size.
David Goldberg, home building analyst at UBS, put out a note that said, in part, "the housing market has shown no signs of a recovery, as reflected in the weaker order trends experienced by Ryland through December" but added that the home-building analyst group at UBS was "impressed" with Rylands success in converting inventory to free cash flow and with its efforts to pay down debt."
Michael Rehaut at J.P. Morgan Securities was also positive on the company's debt and inventory reductions, but he wrote that the land charges represent "an additional 5.7% of equity, for a total 16.9% equity impact" that "resulted in a 4Q-end book value only $125 million above its requirement, representing a cushion of only 12.5%, down from 3Q's 33%, which should result in RYL's seeking an amendment. While we believe RYL will get this amendment, given its solid cash flow, we nonetheless view this as a negative concern for investors."
