NVR, Ryland: Homebuilder Earnings

WASHINGTON ( TheStreet) -- NVR ( NVR) and Ryland ( RYL) shares were lower Thursday after the homebuilders posted mixed quarterly results.

"While we remain generally cautious on housing and expect the road to recovery to be long and bumpy we expect valuations in the sector to trend higher into the spring (as they have the past four years) on hopes the seasonal turn will become a sustained turning point," noted Stifel Nicolaus analyst Michael Widner, commenting on Ryland's results. "We don't believe that turning point is upon us yet, but for now elect to acknowledge the market's seemingly eternal spring optimism for homebuilders."



NVR's homebuilding business segment grew year-over-year but its mortgage banking unit generated a 10.3% decline in profits.

The Reston, Va.-based company booked net profits of $58.7 million, or $9.96 per share, on revenue of $811 million, compared with year-earlier earnings of $60.6 million, or $9.61 per share, on revenue of $745.8 million.

Top- and bottom-line results topped Wall Street's consensus for earnings of $44.9 million, or $7.38 per share, on revenue of $699.9 million.

NVR's backlog of homes sold but not settled dropped 17% year-over-year to 2,916 units, and on a dollar basis by 11% to $958.3 million.

NVR's homebuilder revenue grew 9% to $794.5 million and its mortgage closed loan product grew 10% to $597.9 million.

Still investors were disappointed with NVR's word that orders for new homes fell 12% to 1,765 units, and the builder's cancellation rate increased to 18%, from 15%, year-over-year.

NVR shares bid 1% lower to trade at $776.11 at midday Thursday.



Ryland shares fell 2% to trade at $17.90.

The Calabasa, Calif.-based homebuilder and mortgage finance firm said late Wednesday it booked a wider-than-expected net loss of $19.1 million, or 43 cents per share, compared with year-earlier profits of $39 million, or 88 cents per share.

Revenue dropped 45.7% to $227.1 million.

Analysts' consensus had been for Ryland to book a quarterly loss of $13.8 million, or 35 cents loss per share, on revenue of $234.4 million.

"Not a fantastic quarter, but solid against a tough economic and housing backdrop in our view," noted Stifel's Widner.

The analyst maintained a buy rating on NVR and $20 target price.

Ryland's pretax charges, related to inventory and other valuation adjustments, write-offs and loan loss reserves, totaled $15.4 million, or 35 cents per share, in the quarter, much higher than Widner's $5 million impairment charge estimate.

Still, he said most other metrics in Ryland's report were modestly above his expectations.

Ryland said new orders fell 19.9% to 776 units, though the average closing price increased grew 2.5% to $243,000.

Homebuilding revenue declined 45.5% to $221.1 million, attributed to a 45.4% drop in closings to 909 units.

Results at Ryland's financial services business nearly halved to $227.1 million. Better-than-expected real estate data offered welcome news about the economy this month, but the housing market continues to bounce along the bottom, said Kevin Brungardt, CEO of RoundPoint Financial, a mortgage origination and servicing firm.

TheStreet spoke with Brungardt after data released in recent days showed that pending home sales rose 2% in December, new-home sales spiked 17.5% and existing-home sales rebounded 12.3%.

He said the reports showed generally nice data points, especially that the supply of new homes for sale fell below the 7-month mark, but that "housing keeps plodding along toward a slow recovery" facing a number of headwinds.

Brungardt reiterated the usual suspects of headwinds facing the residential real estate market, namely high unemployment, potential buyers' low confidence in the stability of home prices and the large inventory of distressed properties that still need to be cleared.

He doesn't expect the U.S. housing market to recover until 2013, at least.

The homebuilder sector is well off its late-spring peak, when buyers were rushing to take advantage of federal tax credits for homebuyers, and is only slightly higher than at the beginning of 2010. Whereas other sectors have begun a rebound in earnest, the housing sector continues to lag.

The SPDR S&P Homebuilders ( XHB), an exchange-traded fund that tracks the homebuilder sector, remains more than 60% off its peak of $46.08 in early 2006. The iShares Dow Jones US Home Construction ( ITB) ETF remains more than 72% off its peak of $50.10 in the spring of 2006.

Elsewhere in the homebuilder sector, Toll Brothers ( TOL) fell 1.2% on Thursday. Toll Brothers surprised investors with a return to year-over-year profitability in its fiscal fourth quarter, and recently said deposits jumped 10% in the second half of November compared with year-earlier results.

Lennar ( LEN) lost 1.8%. Earlier this month, Lennar posted better-than-expected fiscal-fourth quarter earnings but said new-home deliveries were down 12%.

Small-cap builder KB Home ( KBH) bid 2.3% lower on Thursday. KB Home recently posted a surprise quarterly profit and said fewer homes delivered in its recent quarter was partially offset by an increase in the average selling price.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

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