Forestar Group Q4 Earnings Call Highlights

Key Points

• Fiscal 2026 results: Forestar reported $142.6 million in net income on $1.6 billion of revenue, while fourth-quarter net income reached $59.2 million. Full-year lot sales totaled 13,545, and book value per share rose 8% to $37.56.
• Fiscal 2027 outlook: The company expects to deliver 12,000–13,000 lots and generate $1.4 billion–$1.5 billion in revenue amid continued affordability constraints, higher mortgage rates and cautious homebuyer demand. It plans to invest about $1.3 billion in land acquisition and development, focusing on undersupplied, faster-turning markets.
• Strong liquidity and lot position: Forestar ended the year with $1.3 billion of liquidity, including $657 million in cash and $658 million of available credit, and held a total lot position of 84,400 lots. D.R. Horton remained its largest customer, though sales to other builders reached the highest share since 2018.

Forestar Group NYSE: FOR reported fourth-quarter net income of $59.2 million, or $1.15 per diluted share, on revenue of $580.8 million, as the lot developer navigated continued affordability pressures and cautious homebuyer sentiment. For fiscal 2026, the company generated net income of $142.6 million, or $2.78 per diluted share, on $1.6 billion of revenue.

President and CEO Andy Oxley said Forestar finished the year within its most recent guidance range despite pressure from higher mortgage rates and weaker new-home demand. The company increased book value per share 8% year over year to $37.56 and ended the fiscal year with $1.3 billion of liquidity.

“Fiscal 2026 was a solid year for Forestar,” Oxley said, citing the company’s revenue, investment activity and balance-sheet position. Forestar invested more than $7 billion in land acquisition and development over the past five years and delivered about 75,000 finished lots to local, regional and national homebuilders, according to management.

Lot Sales and Margin Results

Forestar sold 5,004 lots during the fourth quarter, bringing fiscal-year lot sales to 13,545. Its average sales price was $108,300 in the fourth quarter and $111,200 for the year. Management said quarterly pricing can fluctuate based on the geographic location and lot-size mix of properties sold.

Fourth-quarter revenue included $38.7 million in tract sales and other revenue, while full-year revenue included $129.1 million from those categories.

Gross profit margin was 17.8% in the fourth quarter, down from 22.3% a year earlier. CFO Jim Allen said the quarterly margin was affected by higher costs to close out one project because of increased regulatory compliance requirements, along with $7.6 million of real estate impairment charges associated with two projects.

Excluding those items, fourth-quarter gross margin would have been 20.8%, Allen said. The company’s full-year gross profit margin was 19.7%; excluding the same items, it would also have been 20.8%.

Management said it had not seen significant broad-based cost increases. Oxley said certain development-cost components had declined earlier in the year, though those reductions were largely offset during the second half by other increases, particularly fuel-related costs. He added that pricing has been stable and contractor availability has improved.

Forestar’s core lot-sales margin, excluding tract sales and impairments, was 21% for fiscal 2026, compared with 21.3% in the prior year, according to Oxley.

Fiscal 2027 Outlook

For fiscal 2027, Forestar expects to deliver between 12,000 and 13,000 lots and generate revenue of $1.4 billion to $1.5 billion. The company expects its first fiscal quarter to be its lowest quarter for lot deliveries and revenue, with second-half deliveries and revenue expected to exceed first-half levels.

Oxley said affordability constraints and cautious homebuyers are expected to remain near-term headwinds for housing demand. Builders’ mortgage-rate buydown incentives are helping bridge affordability gaps, COO Mark Walker said, but recent increases in mortgage rates have added pressure.

Walker also said homebuilders are prioritizing shorter cycle times and careful management of home and finished-lot inventories, affecting the timing and volume of finished-lot purchases.

Forestar expects to invest about $1.3 billion in land acquisition and development during fiscal 2027, with the majority directed toward development. The company plans to prioritize investments in undersupplied markets, smaller and faster-turning projects, and projects that can support multiple product types.

• Fourth-quarter land acquisition and development investment: $299 million
• Fiscal 2026 land acquisition and development investment: $1.3 billion
• Share of investment directed to development: about 80%
• Share of investment directed to land: about 20%

Management said it is using disciplined phasing and sub-phasing of projects to align development spending with current demand. Oxley added that Forestar is seeing more potential acquisition opportunities, particularly during the latter half of the fourth quarter, from private builder-developers looking to unlock value amid expectations for a more difficult operating environment.

D.R. Horton Relationship and Lot Position

D.R. Horton remains Forestar’s largest customer. Allen said 14% of the homes D.R. Horton started during fiscal 2026 were built on Forestar-developed lots. The companies have stated a goal for one out of every three D.R. Horton homes sold to be on a Forestar-developed lot.

Oxley said Forestar has made progress toward that goal in many markets, though D.R. Horton operates in roughly 130 markets compared with Forestar’s 65. He said the company’s growth in Western markets and its expanded operating platform could support meaningful progress in fiscal 2027 and 2028.

Forestar sold 1,916 lots, or 14% of its total fiscal 2026 lot sales, to customers other than D.R. Horton. That total included 146 lots sold to a lot banker expected to sell them to D.R. Horton later. Excluding those lots, sales to other homebuilders represented the highest percentage of annual lot sales since 2018. The company sold lots to more than 25 builders during the year, including eight new customers.

At Sept. 30, Forestar had a lot position of 84,400 lots, including 58,200 owned lots and 26,200 controlled through purchase contracts. Of its owned lots, 8,100 were finished, down 16% from the third quarter, with the majority under contract to be sold.

The company had 21,500 owned lots under contract to sell at year-end, supported by approximately $200 million in hard earnest-money deposits. Those contracts are expected to generate $2.2 billion of future revenue. Another 18,600 owned lots were subject to a right of first offer to D.R. Horton under executed purchase and sale agreements.

Liquidity and Leadership Change

Forestar ended fiscal 2026 with $657 million of unrestricted cash and $658 million of available borrowing capacity under its undrawn revolving credit facility. Total debt was $794 million, with no senior-note maturities until fiscal 2028. Its net debt-to-total-capital ratio was 6.7%, while stockholders’ equity totaled $1.9 billion.

Allen said the company intends to prioritize reinvesting cash in the business and its long-term growth opportunity rather than repurchasing shares, despite describing the current stock price as compelling.

Oxley also recognized Executive Chairman Don Tomnitz, who will retire effective Oct. 31. Oxley said Tomnitz’s leadership helped shape Forestar’s strategic direction and growth.

About Forestar Group (NYSE:FOR)

Forestar Group Inc NYSE: FOR is a residential lot development company that acquires, entitles and develops land for housing construction. The company sells finished and partially developed residential lots to homebuilders, including its majority shareholder, D.R. Horton, as well as other national, regional and local builders.

Forestar's activities generally include identifying land opportunities, obtaining development approvals, installing infrastructure and managing the construction of roads, utilities and other improvements needed for residential communities.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.