What is RYL smoking?
In RYL's 10K it states the following:
In 2007, the Company continued to experience a decline in sales orders for new homes, compared to the same period last year. The Company believes its sales orders reflect broader market trends that reflect soft demand for residential housing. Nearly all markets have been affected by reductions in the affordability of homes, the availability of mortgage products and the consumer demand for homes, leading to the continued buildup of new and resale home inventories.....As long as the imbalance of housing supply and demand continues, the Company will remain focused on its liquidity and balance sheet, while seeking to optimize its earnings and to position itself for a return to a more favorable economic environment.
How does the last statement reconcile with the following also contained in the 10K:
"Outstanding contracts at December 31, 2007, represented approximately 33.8 percent of 2008 targeted closings."
The company's Q4 press earnings release states the following:
At December 31, 2007, the dollar value of the Company’s backlog was $786.4 million, reflecting a decline of 39.2 percent from December 31, 2006(31.8% in units).
In order for 2008 starting backlog to be only 33.8% of targeted closings, RYL would have to expect a rapid uptick in orders or else it will have to start a bunch of specs in the very near future in order to deliver enough homes to meet that goal. It is OK to represent you have ambitious goals, but is it OK to make that representation out of one side of your mouth and also state you will remain focused on liquidity?
Last year, starting backlog represented about 40% of delivered units.
With over a 50% decrease in starting spec units, a slower sales environment, and a focus on liquidity, if RYL's starting backlog represents 50% of 2008's total closings, it will be quite an achievement.
Seriously, which is it boys, only 33.8% of targeted closings or a focus on liquidity?
Current consensus analyst estimates for RYL's revenues in 2008 is $2.23 Billion( -26.3% reduction from last year). Factoring lower pricing per unit in 2008, RYL would be lucky if it generated anything close to $1.5 Billion.
Now who is fooling who on the Fool Caps blog?
It wouldn't be such a big deal if the following didn't happen:
25-Jan-08DREIER R CHAD
Officer80,000DirectSale at $31.22 per share.$2,497,600