Ryland is a Southern California-based home builder with a focus on entry-level and second time move-up homes. Its price points are in the $150,000-$500,000 range, which puts them below most of the other builders. Home building provides 97% of their revenues, but they also originate mortgages and have a title business. Ryland is geographically diversified, with operations in every major segment of the country.
Ryland reported earnings per share of $.43, a diluted share up from a loss of $.07 a share a year ago. Revenues increased 74% year-over-year to $347 million. New orders increased 54% in units, and 75% in dollar volume. Backlog increased 57%, and active communities increased 20% to 250. Average closing prices increased 8% to $277,000. Gross margins were 19%. Ryland’s numbers exceeded Wall Street expectations, and the stock traded up 3% in the aftermarket.
Read-across to the other home builders
Ryland’s business model is highly dependent on the first time home buyer. Either they are selling directly to a first-time home buyer or their customer needs to sell to one. The first time home buyer has been largely absent from the market, and appears to be coming back. Household formation numbers have been depressed since the recession started; however, this can be attributed to a difficult economy, not demographics. We are finally seeing an improvement in the household formation numbers, and there is a lot of pent-up demand among young adults. The new households are mainly renters, however, with an improving economy, they will take advantage of low interest rates and a rent versus purchase decision that is as skewed towards purchasing as it has been in generations.
So far, it seems like mid-level builders with West Coast exposure have done well – the only disappointment has been NVR, which is East Coast based. Ryland (RYL) has shown there is strength all over the country in the entry level and second time move up market. We will see how the luxury market is shaping up when Toll Brothers (TOL) reports in May. Generally speaking, it has been a good quarter for the home builders. Lennar (LEN) and KB Homes (KBH) have November fiscal years and reported Q1 earnings last month.
© 2013 Market Realist, Inc.