Land Charges Crush Pulte, Ryland

The homebuilders post hefty losses, as expected.
Publish date:

Updated from 4:55 p.m. EDT

Pulte Homes

(PHM) - Get Report


Ryland Group


each reported steep second-quarter losses, as expected, as land impairment charges and higher selling costs cut into the homebuilders' profits.

Both companies continue to face negative headwinds from falling home prices, which are making previous land investments unprofitable and leading to big charges.

The lack of visibility in the housing market is causing builder management teams to refrain from issuing full-year guidance -- a move that Pulte and Ryland followed in their earnings reports.

However, analysts expect both companies to lose money for the entire year, according to Thomson Financial.

Pulte reported a second-quarter loss of $507.5 million, or $2.01 a share, compared with profit of $243 million, or 94 cents a share, a year earlier. The loss was in line with the company's projection last week of $2 to $2.10 per share.

Results were hampered by $749 million of land impairment charges -- among the largest of such charges recorded by any builder yet in the downturn.

Pulte's revenue fell 40% from last year to $2 billion. New orders dropped 20%.

"As reported in our preliminary release last week, the homebuilding industry continues to face an extremely difficult environment that includes record existing and new home inventory levels, intense price competition and weak consumer sentiment for housing," Pulte CEO Richard Dugas said in a statement.

Elsewhere, Ryland posted a loss of $52.4 million, or $1.25 a share, compared with profit of $94.8 million, or $2.03 a share, a year earlier.

The results also were in line with management's estimate earlier this month for a loss of $1.25 to $1.35 a share. At the time, that was well worse than analysts' forecast for a profit of 32 cents a share.

Ryland recorded $147 million of inventory impairment charges tied to land investments.

The company's revenue fell 38% from last year to $740 million. New orders declined 17%, as the company previously reported.

Higher marketing and advertising costs for selling homes drove up selling, general and administrative expenses at Ryland and Pulte.

At Pulte, such costs, as a percentage of homebuilding revenue, were 15.5%, compared with 8% for the same period last year.

For Ryland, the costs represented 11.5% of revenue in the quarter, compared with 10.1% a year earlier.

Both stocks, like those of most homebuilders, are hovering near their 52-week lows. On Wednesday, Ryland rose 22 cents to $32.92 and Pulte added 21 cents to $20.67.