From Ryland's latest 10-Q, for 3/31/13
The Company consists of six operating business segments: four geographically-determined homebuilding regions; financial services; and corporate. All of the Company’s business is conducted and located in the United States. The Company’s operations span all significant aspects of the homebuying process—from design, construction and sale to mortgage origination, title insurance, escrow and insurance services. The homebuilding operations are, by far, the most substantial part of its business, comprising approximately 97 percent of consolidated revenues for the quarter ended March 31, 2012. The homebuilding segments generate nearly all of their revenues from sales of completed homes, with a lesser amount from sales of land and lots.
During the first quarter of 2012, attractive housing affordability levels; modest improvement in economic and unemployment indicators; and moderate changes in buyer perceptions appear to have enhanced the Company’s ability to attract qualified homebuyers. New home prices appear to have stabilized; required sales incentives have continued to decline in most markets; average sales traffic through the Company’s communities has increased; sales rates have risen noticeably; and cancellation rates have decreased. The Company has begun to raise prices in selective markets and has reported an increase in sales volume for the quarter. These trends may be early signs that new housing markets have begun to improve. An uncertain macroeconomic environment; tight mortgage credit standards and mortgage availability; and a large inventory of lender-controlled homes acquired through foreclosure continued to impact the homebuilding industry by keeping sales absorptions per community depressed, compared to traditional levels. The Company continues to believe that meaningful advances in revenue growth and financial performance will primarily come from higher demand in the form of a return to more traditional absorption rates.The Company’s net loss from continuing operations totaled $3.0 million, or $0.07 per diluted share, for the three months ended March 31, 2012, compared to a net loss from continuing operations of $17.4 million, or $0.39 per diluted share, for the same period in 2011. The decrease in net loss for the first quarter of 2012, compared to the same period in 2011, was primarily due to higher closing volume; lower inventory valuation adjustments; a decline in interest expense; and a reduced selling, general and administrative expense ratio. Pretax charges related to inventory and other valuation adjustments and write-offs totaled $2.1 million and $9.1 million for the quarters ended March 31, 2012 and 2011, respectively. In spite of reporting a net loss, the Company continued its progress toward profitability by raising gross margins through continued investments in new, more profitable communities; completing less desirable communities; and lowering expense ratios.The Company reported a rise in closing volume for the quarter ended March 31, 2012, compared to the same period in 2011, primarily due to increases in sales rates and active communities. The Company’s consolidated revenues increased 28.7 percent to $215.9 million for the three months ended March 31, 2012, from $167.7 million for the same period in 2011. This increase was primarily attributable to a 25.4 percent rise in closings and to a 3.2 percent increase in average closing price. The increase in average closing price was due to a slightly more stable price environment, as well as to a change in the product and geography mix of homes delivered during the first quarter of 2012, versus the same period in 2011. Revenues for the homebuilding and financial services segments were $209.5 million and $6.3 million, respectively, for the first quarter of 2012, compared to $161.4 million and $6.2 million, respectively, for the same period in 2011.New orders rose 46.4 percent to 1,328 units for the quarter ended March 31, 2012, from 907 units for the same period in 2011, primarily due to increases in sales rates and active communities. New order dollars increased 51.8 percent for the quarter ended March 31, 2012, compared to the same period in 2011. The Company’s average monthly sales absorption rate was 2.1 homes per community for the first quarter of 2012, versus 1.5 homes per community for the first quarter of 2011. In order to prepare for a slow recovery and to attain volume levels
Granted, this is for the quarter ended March 31; I would expect a slowing of sorts for the second quarter 2012. However, the overall tenor of this report is positive; sales traffic is increasing as are prices; revenues increased and sales incentives are declining.
“Evidence from the field suggests that the 'for sale' housing market has, in fact, bottomed and that we have commenced a slow and steady recovery process. And while the housing downturn was broad-based and national, the recovery process continues to be very localized. Although highly conservative mortgage lending practices and challenging appraisals remain a constant headwind, we are experiencing net positive price and volume trends in most of our markets.”
Mr. Miller continued, “As the overall housing market has continued to improve over the last several quarters, our well located communities and product execution has allowed us to outperform the market. During the quarter, deliveries increased 20%, new orders increased 40%, backlog increased 61% and our operating margin increased over 100% to 9.2%, our highest margin percentage since Q2 2006. This operating leverage was driven by our ability to increase sales per community, raise prices and lower incentives, and control our overhead costs.”“During the quarter, we reversed a portion of the valuation allowance against our deferred tax assets amounting to $403 million. This conclusion was based on an extremely detailed evaluation by our management team and reviewed by our independent auditors, Deloitte & Touche. The evaluation consisted of all relevant evidence, both positive and negative, including such factors as nine consecutive quarters of earnings, the expectation of continued profitability, as well as the improved housing market.”Mr. Miller concluded, “Looking ahead, our strong balance sheet and significant liquidity, which was enhanced this quarter by our new $525 million unsecured revolving credit facility, continue to position us to capitalize on future strategic opportunities.”
Also consider these statements regarding the 2Q2012:
Revenues from home sales increased 23% in the second quarter of 2012 to $796.4 million from $649.8 million in 2011. Revenues were higher primarily due to a 20% increase in the number of home deliveries, excluding unconsolidated entities, and a 2% increase in the average sales price of homes delivered. New home deliveries, excluding unconsolidated entities, increased to 3,192 homes in the second quarter of 2012 from 2,652 homes last year. There was an increase in home deliveries in all the Company's Homebuilding segments and Homebuilding Other. The average sales price of homes delivered increased to $250,000 in the second quarter of 2012 from $245,000 in the same period last year. Sales incentives offered to homebuyers were $29,800 per home delivered in the second quarter of 2012, or 10.7% as a percentage of home sales revenue, compared to $33,900 per home delivered in the same period last year, or 12.1% as a percentage of home sales revenue, and $34,200 per home delivered in the first quarter of 2012, or 12.2% as a percentage of home sales revenue.
This paragraph is very similar to that reported by Ryland above.
In our second quarter of 2012, we continued to see an improving sales trend as the number and value of our net sales orders increased 19% and 28% compared to the same period of fiscal 2011. Consistent with fiscal 2011, we are seeing a demand pattern in our net sales during fiscal 2012 that is similar to the demand pattern we traditionally saw prior to the current housing downturn. The traditional demand pattern has the lowest net sales orders in our first fiscal quarter, a sequential increase from the first quarter to the second quarter, a consistent level in the third quarter and then slowing net sales orders in the fourth quarter. Our net sales orders for the current quarter increased 55% from the previous quarter, reflecting the expected seasonal increase as our spring selling season began. Our recent results and other national housing data suggest that the overall demand for new homes has slowly begun to improve, but we expect that demand is likely to remain at low levels for some time, with uneven improvement across our operating markets.
In the three and six months ended March 31, 2012, revenues from home sales increased 27% and 21% from the prior year periods and pre-tax income was $42.3 million and $71.5 million compared to pre-tax losses of $30.8 million and $50.7 million in the prior year periods. Based on our sales order backlog of 6,189 homes at March 31, 2012 and our current sales pace, we expect to close more homes in the second half of fiscal 2012 than in the first half, and we expect to continue generating pre-tax income. These results reflect our ability to operate profitably in a challenging environment through our strategy of investing capital to expand our operations, managing inventory levels efficiently, improving gross margins, and controlling SG&A and interest costs effectively
During the 2012 first quarter, we continued to focus on disciplined land acquisition to grow community count in the move-up segment, constructing well built, innovatively designed, and energy efficient homes, and providing an industry leading customer experience, all of which contributed to our first profitable first quarter in six years. Net income for the 2012 first quarter was $8.5 million, or $0.02 per diluted share, compared to a net loss of $14.8 million, or $0.04 per diluted share, in the first quarter of 2011. In addition, our number of average active selling communities, average selling prices, new home deliveries, net new orders and backlog levels increased during the 2012 first quarter compared to the year earlier period. While the housing market remains challenging, affordability in each of our geographic markets generally remains attractive relative to historical metrics. With over $366 million of unrestricted homebuilding cash and the additional amounts that remain available under our $210 million revolving credit facility, we believe we have ample liquidity to position the Company for future growth.
Homebuilding pretax income for the 2012 first quarter was $7.3 million compared to a pretax loss of $13.4 million in the year earlier period. The improvement in our financial performance was primarily the result of a 53% increase in home sale revenues and an $8.0 million decrease in interest expense. The 2012 first quarter also included $4.1 million of income related to the settlement of a property insurance claim.Home sale revenues increased 53%, from $143.7 million for the 2011 first quarter to $220.3 million for the 2012 first quarter, as a result of a 46% increase in new home deliveries and a 5% increase in our consolidated average home price to $343 thousand
Homebuilding revenues increased 17% for the first quarter of 2012 from the same period in 2011 primarily as a result of an 18% increase in the number of units settled. The increase in the number of units settled was primarily attributable to our beginning backlog units being approximately 26% higher entering the first quarter of 2012 as compared to the same period in 2011, offset partially by a lower backlog turnover rate quarter over quarter.
Gross profit margins in the quarter ended March 31, 2012 decreased 77 basis points compared to the first quarter of 2011 due primarily to pricing pressures experienced in prior quarters. In addition, gross profit margins were negatively impacted by higher construction costs quarter over quarter. We expect to continue to experience gross profit margin pressure over at least the next several quarters.The number of new orders and the average selling price of new orders for the first quarter of 2012 increased 31% and 6%, respectively, when compared to the first quarter of 2011. New orders were higher quarter over quarter in each of our market segments. The increase in new orders was driven by increased sales absorption in many of our markets. As discussed in the Overview section above, we believe this increase is attributable to a stabilization of housing prices in certain of our markets and other favorable economic factors. In addition, new orders in the current quarter were favorably impacted by a decrease in the cancellation rate to 10% from 12% in the prior year quarter.
