Ryland, warning of loss, discloses 26% drop in homes sold in quarter
Ryland Group Inc., the biggest U.S. home builder for first-time buyers, forecast a loss of 50 cents to 60 cents a share for the first quarter as preliminary estimates show the number of homes sold fell 26%.
Ryland expects to take a charge of about $65 million to reflect declining values of residential communities in Fort Myers, Fla., Phoenix, Southern California and Washington, D.C., the Calabasas-based company said Wednesday.
Profits at U.S. home builders have fallen during the last year as the industry faces the biggest housing slump in 15 years. Companies have been offering incentives to attract buyers, reducing profits. Rising interest rates and job losses in manufacturing have taken a further toll on first-time home buyers, causing defaults to rise and pushing sub-prime mortgage lenders such as New Century Financial Corp. into bankruptcy protection.
“We are disappointed by the continued reduction in sales and closings,” Ryland Chief Executive Chad Dreier said. “As the first quarter progressed, it became clear that aggressive pricing strategies persisted in several markets, requiring us to write down the value of some of our assets this quarter.”
The company said it also expected to write off the $15 million in remaining goodwill associated with the 1986 acquisition of California home builder M.J. Brock & Sons. Mainly because the goodwill charge isn’t deductible, Ryland said, its annual tax rate in effect rose to 39% from 37.5%.
Excluding the impairment charge, the goodwill write-off and the tax rate change, Ryland expects first-quarter earnings of 63 cents to 73 cents a share.
Preliminary sales for the quarter fell 26% to 2,989 units from 4,021 units a year earlier, and the cancellation rate was 28% of gross sales, Ryland said. The company closed on 2,302 units, down from 3,554 a year earlier, a decline of 35%.
Dreier said the company was encouraged that the cancellation rate improved from 49% in the fourth quarter.
Ryland plans to release first-quarter results April 25. The company’s announcement was made after markets closed. Its shares fell 65 cents to $41.25 in regular trading.
Separately, the California Public Employees’ Retirement System, the largest U.S. public pension fund, said it planned to vote against the reelection of a KB Home director who headed the company’s compensation committee while stock option grants were backdated.
Ray R. Irani, CEO of Occidental Petroleum Corp., is seeking reelection at KB Home’s annual meeting today, CalPERS said Wednesday.
Federal prosecutors are probing option practices at KB Home, the No. 5 U.S. home builder. Former CEO Bruce Karatz resigned in November and human resources chief Gary Ray was fired the same day after KB Home said they used “hindsight” to ensure favorable exercise prices.
