Summary


Business:

Homebuilding, mortgage finance

Headquarters:

Calabasas

CEO:

R. Chad Dreier

Market Cap:

$636.2 million Dividend Yield: 0.32%

Total Liabilities:

$834 million P/E Ratio: 7.94

Long-Term Debt:

$450 million

Sticking with its strategy of building affordable housing and not being tempted to expand into other markets, Ryland Group Inc. has seen its stock climb out of the doldrums to trade near its 52-week high of $51.25 a share.

Worries about a slowing economy hit the company a year ago, when its shares dipped a 52-week low of $20 a share last May.

But the company has been coming on strong, despite the broader economic cooling.

Ryland, the nation’s No. 6 homebuilder, reported net income $16.1 million ($1.12 per diluted share) for the first quarter ended March 31, up from $10.9 million (78 cents per share) for the same period a year earlier.

First-quarter revenues were $514.2 million, vs. $429 million in the first quarter of 2000.

As for the volume of homes sold, Ryland increased its sales to 3,970 homes during the first quarter, up from 3,172 in the same period last year.

Home sales for all of 2000, at 11,414 units, marked an 11 percent increase from the prior year.

Despite those strong numbers, some analysts suggest that Ryland would be better off in markets where it does not possess a dominant market share either buying or merging with competitors to obtain that dominance, selling out to competitors and refocusing on areas where it could be dominant.

“When you are a market leader, you get better pricing on land and a first look many times on parcels that become available,” said Stephen Percoco, an analyst for Lark Research Inc. “Some developers will choose to work with you (if you’re a market leader) and give you a better price because they know you are going to be there and that you will be a buyer.”

Ryland currently has offices in 21 markets scattered among 14 states and the District of Columbia. And while it has a sizable presence in these markets, it is not dominant.

“Ryland is in a number of markets where they may be in the top 10, but not in the top 5,” Percoco said. “That could present them with significant challenges in the housing market downturn. Most builders have roughly the same construction costs. What determines profitability is the land pricing.”

Ryland CEO R. Chad Dreier said the company would not be entering new markets anytime soon, and added that it has no plans to buy, sell or merge with other companies. He stressed that all 21 Ryland markets are strong and that the company plans to increase its share of those markets.

The company will be sticking to its program, he said, taking advantage of the decline in consumer confidence by continuing to build less-expensive houses for the mass market and by aggressively marketing its mortgage business reminding would-be buyers that interest rates are near their lowest level in a decade.

Despite his assertion that Ryland might be better off ceding certain markets to competitors, Percoco remains bullish on the company.

“I would have expected the financial performance of homebuilders to be weakened by now, in spite of the lower interest rates,” Percoco said. “So I believe anybody following this industry has been expecting at least a moderate pullback in housing construction. But Chad Dreier has instilled discipline in land buying, construction practices and housing designs. The company refocused their land and product strategy. They are more in step with where the market is today.”

To help it keep “in step,” Ryland moved its headquarters from Columbia, Md. to Calabasas last July. It was precipitated in part by the belief of Dreier, an L.A. native, that housing trends begin in California and move eastward. It also helped that Columbia, where the company was founded in 1967, is also almost fully built-out.

“California is innovative and creative,” said Dreier. “It is the nature of (Los Angeles) and the entertainment industry and how it grew after World War II. And I thought the talent pool of executives was bigger here.”

Ryland targets its business at first-time buyers and first- and second-move up customers. The company also offers mortgage loans and markets itself as a one-stop option for such services as title searches, settlement and escrow services and homeowners’ insurance.

The average Ryland house nationwide sold for $194,000 in 2000.

“(All Ryland) homes are built with the same standard,” said Cathy Lowe, the company’s vice president and treasurer. “I think being a lender also helps you sell houses. It makes it easier for people to buy a home if you can also provide the financing.”