Forestar Group NYSE: FOR reported higher fiscal third-quarter revenue and profit, while management said affordability pressures and cautious consumer sentiment continue to weigh on new home sales activity.
The residential lot developer said revenue for the quarter rose 4% year over year to $407 million, driven by 3,659 lots sold. Net income attributable to Forestar increased 9% to $35.9 million, or $0.70 per diluted share, compared with $32.9 million, or $0.65 per diluted share, in the prior-year quarter.
President and CEO Andy Oxley characterized the quarter as “solid,” citing higher revenue and earnings, a stronger book value and substantial liquidity. “Ongoing affordability constraints and cautious consumer sentiment continue to impact the pace of new home sales,” Oxley said. “In response, we are managing our inventory investments with discipline and flexibility.”
Profitability Improves Despite Slower Demand Environment
Chief Financial Officer Jim Allen said pre-tax income increased 12% to $48.7 million, up from $43.6 million a year earlier. Forestar’s pre-tax profit margin rose 80 basis points to 12%, compared with 11.2% in the prior-year period.
Chief Operating Officer Mark Walker said the company’s average sales price during the quarter was $108,800 per lot. He cautioned that the average sales price is expected to fluctuate from quarter to quarter depending on the geographic and lot-size mix of deliveries.
Gross profit margin was 20.7%, compared with 20.4% in the same quarter last year. During the question-and-answer session, Allen said margins remained toward the lower end of the company’s historical range, reflecting both mix and “a slower absorption environment.” He said the company continues to manage price and pace on a project-by-project basis.
On costs, Walker said direct costs have been relatively stable over the past 12 months, with reductions in some categories offset by increases in others. He said Forestar has not seen a large decrease in costs overall.
Backlog Points to $2.3 Billion in Future Revenue
Forestar ended the quarter with a total lot position of 91,700 lots, including 62,200 owned lots and 29,500 controlled through purchase contracts. Of the owned lots, 9,600 were finished at quarter-end, and management said the majority were under contract to sell.
Walker said 23,500 owned lots, or 38% of the company’s owned lot position, were under contract at quarter-end. Those contracts were secured by $202 million of earnest money deposits and are expected to generate approximately $2.3 billion of future revenue.
Another 31% of owned lots are subject to a right of first offer to D.R. Horton based on executed purchase and sale agreements, the company said.
Allen emphasized the significance of D.R. Horton as Forestar’s largest customer. He said 14% of the homes D.R. Horton started over the past 12 months were on Forestar-developed lots. Forestar and D.R. Horton have a stated goal for one out of every three homes D.R. Horton sells to be on a lot developed by Forestar.
Forestar also continued to sell lots to other builders, with 289 lots, or 8% of third-quarter deliveries, sold to 12 other customers during the quarter.
Company Maintains Fiscal 2026 Guidance
Oxley said Forestar is maintaining its fiscal 2026 guidance for lot deliveries of 14,000 to 14,500 lots and revenue of $1.6 billion to $1.7 billion.
He said the company has more than 200 active projects across its national footprint, giving it flexibility to allocate capital based on local demand and market conditions. Oxley also said Forestar reached a milestone during the quarter by delivering its 100,000th lot since D.R. Horton made its investment in the company in 2017.
Management said the company remains focused on turning land and lot inventory efficiently, maximizing returns and consolidating market share in the fragmented lot development industry.
Balance Sheet and Capital Spending Remain Key Focus
Forestar ended the quarter with approximately $1.1 billion of liquidity, including $395 million of unrestricted cash and $670 million of available capacity on its undrawn revolving credit facility. Total debt was $793.8 million at June 30, with no senior note maturities in the next 12 months. The company’s net debt-to-capital ratio was 17.7%.
Stockholders’ equity was $1.9 billion, and book value per share increased 10% from a year ago to $36.40.
Allen said Forestar’s capital structure is a competitive advantage compared with land developers that rely on project-level land acquisition and development loans. He said those loans have become less available and more expensive in recent years and are typically more restrictive, carry floating rates and add administrative complexity.
During the quarter, Forestar invested $312 million in land and land development. Chris Hibbetts, vice president of finance and investor relations, said roughly 80% of that investment went toward land development and 20% toward land acquisition. The company still expects to invest approximately $1.4 billion in land acquisition and development in fiscal 2026, subject to market conditions.
Executives See Stable Land Market, Potential for Share Gains
In response to an analyst question about competition in the land market, Oxley said conditions have been “relatively stable,” with little change in land prices. He said Forestar has seen some improvement in negotiating terms, including takedowns and the ability to get through entitlement and permitting.
Oxley said development activity appears somewhat lower across a number of markets, while most markets remain slightly undersupplied from a finished-lot perspective. He said that creates an opportunity for future growth.
Walker said Forestar targets owning a three- to four-year supply of land and lots. He said the company’s owned lot supply is currently slightly above four years and that management feels good about its ability to grow market share, both with D.R. Horton and other builders.
On development cycle times, Walker said contractor availability continues to improve and the company is able to use higher-rated contractors. He said cycle times have declined by close to six months over the past 36 months and are currently around 12 months. However, he said jurisdictional processes remain a bottleneck to further reductions.
Oxley said home affordability constraints and cautious consumer sentiment are expected to remain near-term headwinds for home demand. Still, he said management remains confident in long-term demand for finished lots and Forestar’s ability to gain share.
About Forestar Group (NYSE:FOR)
Forestar Group Inc, headquartered in Austin, Texas, is a residential lot development and management company focused on delivering finished home sites to homebuilders across the United States. The company acquires, entitles and develops land for single-family and multi-family housing, managing zoning, infrastructure and environmental approvals to prepare lots for construction. Forestar's integrated approach to land development spans from initial site acquisition through final lot delivery, providing homebuilders with ready-to-build parcels in a variety of markets.
In addition to lot development, Forestar operates a retail homebuilding segment through joint ventures and strategic partnerships with national and regional homebuilders.
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