Storms to Weigh on Builders’ Profits
Southern California’s powerful rainstorms may be history now, but they’re expected to damp the bottom lines of some of the region’s biggest builders.
On Wednesday, Ryland Group Inc. said the severe wet weather would affect the number of houses slated to be finished in the current quarter. As a result, the Calabasas company will push 8 cents to 10 cents of first-quarter profit to later periods, Chairman and Chief Executive R. Chad Dreier told a conference call of analysts.
Still, Ryland expects to earn more than $7.25 a share for the year, Dreier said, and will close on sales of 18,000 homes. Company shares rose 43 cents to $61.79 on the New York Stock Exchange.
Last week, MDC Holdings, which builds homes under the Richmond American brand, warned of delays at some of its Southern California projects but declined to offer any earnings guidance.
Because construction, by its nature, is largely an outdoor activity, builders each year plan for “rain days” -- periods when work is slowed by weather -- even in usually sunny California, said Thomas Noon, president of D.R. Horton Inc.’s California division.
“What the rains do,” Noon said, “is affect the beginning of construction, not the end.”
If some foundations didn’t get poured in December and January, he said, “there’s plenty of time to catch up” before the first quarter ends March 31.
For Hovnanian Enterprises Inc., the heavy rains were particularly ill-timed because they came before the close of its fiscal first quarter Jan. 31. Hovnanian expects per-share earnings to fall short by 20 cents.
The rains threw off some land development schedules and hampered exterior finishing work and landscaping “on a number of homes,” said President and Chief Executive Ara K. Hovnanian.
Meanwhile, power companies have been focusing on repairs rather than setting up meters in new houses, further hampering completions at some of its Forecast Homes and K. Hovnanian communities.
Overall, the rains will probably be a “blip” on builders’ financial sheets, said industry consultant John Burns.
Still, the downpours delayed construction three to five weeks for many companies. “So earnings will be down,” Burns said, “and builders will deliver fewer homes.”
The industry sees itself weathering the setbacks.
On Wednesday, the Public Home Builders Council trade group predicted that earnings for the top companies would grow from 10% to 30% this year while revenues would expand by 20%.
