Builder Ryland’s Earnings Drop 26%

Home builder Ryland Group Inc. said Wednesday that its third-quarter profit fell 26% as sales incentives reduced earnings.

But the results beat analysts’ estimates and the company’s shares jumped as much as 6.5% in after-hours.

Net income declined to $87.9 million, or $1.97 a share, from $118 million, or $2.39, a year earlier, the Calabasas-based company said. The average of 12 estimates from Thomson Financial was $1.77 a share. Thomson didn’t disclose the basis for the estimates.

Profit margins at home builders have narrowed because of costs to cancel land-purchase agreements and the expense of special offers to potential buyers such as appliance upgrades and mortgage payments. An analyst said profit margins were wider than some thought.

“They’re willing to take a volume hit but maintain pricing and margins,” said Josh Spencer, a research analyst at T. Rowe Price in Baltimore, which owns about 1 million shares of Ryland.

Ryland said new orders fell 45.6% to 2,372 from 4,361 in the same period last year. The inventory of previously owned homes on the market rose to a record 3.92 million in August, the National Assn. of Realtors said in a Sept. 25 report. The inventory of new houses rose to an all-time high of 569,000, the Commerce Department said Sept. 27.

Home builders including Ryland have lowered their earnings forecasts this year as housing demand has dropped. Ryland, which sells houses in 28 markets around the U.S., has lowered its 2006 earnings forecast three times this year. The company affirmed its most recent earnings forecast of $7.75 to $8.25 a share for 2006.

Ryland shares rose to $45.89 in after-hours trading after falling $1.27 to $43.66 in regular trading. The shares are down 39% this year, compared with a drop of 29% for the 16-member Standard & Poor’s super-composite home-building Index.

Separately, Ryland said Tuesday that it promoted Kipling Scott, 52, to the new position of chief operating officer.