Updated from Jan. 24

Homebuilder Ryland ( RYL) said fourth-quarter earnings fell 46% from a year earlier, dragged down by land writedowns and increased sales incentives for new homes.

Ryland also offered a guidance for 2007 that could prove overly optimistic if the company is unable to continue holding steady on its house prices in an effort to avoid even larger land impairment charges.

Ryland said it earned $87.2 million, or $1.98 a share in the quarter, beating the $1.84 Thomson Financial estimate. A year earlier, profit totaled $162 million, or $3.32 a share.

Revenue slid 11% to $1.35 billion from $1.53 billion a year earlier. Wall Street expected revenue of $1.14 billion.

Profits were weighed down by $42.8 million of land impairment charges and $11.6 million of write-offs associated with land option contracts. The company also said it had increased sales incentives to move homes.

As a result, gross margins fell to 17.9% from 26.3% a year earlier.

New-home orders fell 44% to 1,718 units, with declines across the country. The most pronounced drop came in the Southeast, where there was a 58% plunge in orders.

For 2007, Ryland forecast earnings per share of $3.75 to $4.25. Analysts currently expect EPS of $4.22.

The guidance "appears optimistic," said Bank of America analyst Daniel Oppenheim in a research note late Wednesday. He expects the company to earn $3.25 per share in 2007.

"We think a 49% decline in earnings at the midpoint is optimistic, given a 51% decline in backlog, likely deteriorating in margins, and potential impairments if Ryland lowers pricing to become more competitive," he wrote.

Oppenheim said Ryland's strategy of not drastically cutting home prices (in contrast to most other builders) delays large land impairment charges, "but will not eliminate the need to record charges."

Ryland's $54.4 million of land and option charges in the quarter reduced shareholders' equity by 2%, which was less than the 6% average reduction among builders that either reported or pre-announced fourth quarter results.

Ryland continues to trade at the highest price-to-book ratio among the larger homebuilders because of the perhaps erroneous expectations that it will experience less margin deterioration and fewer land impairment charges because the company is holding steady on home prices.

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