While homebuilders' quarterly and annual reports have been pretty horrible in terms of year-over-year comparisons, they've also been a little truncated because their reporting periods ended before December.
Ryland (NYSE: RYL) is one of the first homebuilders to report full-year and quarterly results that include the full calendar year up to Dec. 31 -- and it's not as bad as it might have been. While revenues and earnings were naturally down, they actually managed to beat analyst expectations, as you can see in this recent Fool by Numbers.
Although analysts had predicted a 25% decline in revenues and a 44% drop-off in earnings, Ryland mitigated the shortfalls (11% and 40%, respectively) because the price of the houses it did sell increased to $298,000, a nudge up from the $295,000-per home sold last quarter. That's an anomaly not shared by most other builders: DR Horton (NYSE: DHI) has cut prices 2.8% since the beginning of the year and Lennar (NYSE: LEN) was aggressively cutting prices (4% sequentially and 10% year over year). Only MDC Holdings (NYSE: MDC) has also been able to maintain higher selling prices thus far, yet it also runs counter to what Ryland was doing earlier in the year.
Pre-tax earnings for the homebuilder took a big hit; profits fell 50% to $130.5 million, as closings were off as much as 16% and gross margins dropped to 18% from the 26% recorded last year. This fall is a result of having to write off more than $42 million in inventory valuations, and charges of nearly $12 million for deposits and pre-acquisition costs. That's not so bad considering what other builders are reporting, but they also had to resort to more incentives for buyers, like greater amenities, reduced closing costs, and teaser interest rates.
Ryland didn't comment on how December went, but is it a portent of the "soft landing" analysts have been hoping for? Some have looked at the comparison between October's dismal building starts of a 14% decline and November's 6.7% gain and seen a glimmer of hope. Yet with the number of starts subject to more reporting errors, it's probably better to look at building permits, which fell 3% in November from October. That number tends to be a leading indicator for housing starts.
Perhaps Ryland's performance is an insignificant, fleeting bounce that will not be repeated in the first quarter. According to the Department of Housing and Urban Development, December's housing starts were down 4.5%, while building permits were up 1.2% from November. It seems that the number of starts is considerably worse than what the numbers show, since the Northeast has been fortunate to have had a mild winter which allowed more projects to start (they were up 25% here). On the other hand, the number of permits issued may just be a hopeful sign from builders that they've bought into the soft landing concept and the worst of the decline is over.
With Pulte (NYSE: PHM), Centex (NYSE: CTX), and Toll Brothers (NYSE: TOL) all reporting the worst conditions in 25 years, it seems too much like wishful thinking to believe that the carnage is over and this small uptick isn't just a "dropped hammer" bounce.
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
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