Forestar Group Inc. (FOR) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed signals: a 9% revenue increase and strong liquidity are positives, but declining margins and cautious market outlooks are negatives. The Q&A highlights management's strategic moderation in key markets and stable SG&A, but lacks clarity on addressing specific challenges. With a market cap of $1.6 billion, the stock is unlikely to see significant movement, resulting in a neutral prediction.
Key Financial Performance
Revenue $273 million, a 9% increase from the prior year quarter ($250.4 million). The increase was driven by higher lot sales and an outsized mix of lot deliveries from communities with higher price point lots.
Net Income $15.4 million or $0.30 per diluted share, compared to $16.5 million or $0.32 per diluted share in the prior year quarter. The decrease was due to lower pretax profit margins.
Pretax Income $20.8 million, compared to $21.9 million in the prior year quarter. The decrease was attributed to lower gross profit margins.
Pretax Profit Margin 7.6%, compared to 8.7% in the prior year quarter. The decline was due to a tract sale with an unusually low margin.
Gross Profit Margin 20.1%, compared to 22% in the prior year quarter. The decline was due to a tract sale with an unusually low margin. Excluding this, the gross margin would have been approximately 21.5%.
SG&A Expense $36.5 million or 13.4% of revenues, compared to $36 million or 14.4% of revenues in the prior year quarter. The slight increase in expense was offset by a 3% decrease in headcount.
Liquidity $820 million, including $212 million in unrestricted cash and $608 million of available capacity on the undrawn revolving credit facility. This strong liquidity supports growth objectives.
Total Debt $793 million, with no senior note maturities in the next 12 months. The net debt-to-capital ratio was 24.6%.
Stockholders' Equity $1.8 billion, with a book value per share of $35.10, a 10% increase from the prior year. The increase reflects strong financial performance and disciplined investment strategy.
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Operating Highlights
Revenue growth: Forestar generated revenues of $273 million in Q1 2026, a 9% increase from the prior year quarter.
Market share expansion: Forestar is consolidating market share in the fragmented lot development industry, with a contracted backlog indicating $2.2 billion of future revenue.
Customer relationships: 16% of D.R. Horton's homes started in the past 12 months were on Forestar-developed lots, with a goal to increase this to 1 out of every 3 homes.
Liquidity and financial strength: Forestar ended the quarter with $820 million in liquidity, including $212 million in cash and $608 million in available credit.
Operational efficiency: Land development costs and cycle times have stabilized, and the company is focused on developing lots for entry-level and first-time buyers.
Investment strategy: Invested $415 million in land and land development in Q1 2026, with 75% allocated to land development and 25% to land acquisition.
Strategic focus: Maintaining fiscal 2026 revenue guidance of $1.6 billion to $1.7 billion and lot delivery guidance of 14,000 to 15,000 lots.
Capital structure advantage: Forestar's strong liquidity and modest leverage provide operational flexibility and a competitive edge over competitors relying on restrictive project-level loans.
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Risk or Challenges
Affordability Constraints: Affordability constraints and cautious consumer sentiment are impacting the pace of new home sales, posing a challenge to revenue growth and market demand.
Gross Profit Margin Decline: The gross profit margin decreased from 22% to 20.1% compared to the prior year, with a specific tract sale negatively impacting margins. This could affect overall profitability.
Market Demand Fluctuations: Quarterly fluctuations in average sales price due to geographic and lot size mix could lead to unpredictable revenue streams.
Reliance on D.R. Horton: A significant portion of sales is tied to D.R. Horton, creating dependency on a single customer for growth and market share expansion.
Land Acquisition and Development Costs: Although costs and cycle times have stabilized, the company has moderated land acquisition investments, which could limit future growth opportunities if market conditions change.
Competitive Pressures: The highly fragmented lot development industry presents challenges in consolidating market share and maintaining competitive advantages.
Economic Uncertainty: Cautious consumer sentiment and affordability issues are tied to broader economic uncertainties, which could impact future demand for new homes.
Debt and Leverage: While the company has significant liquidity, reliance on modest leverage and maintaining a strong balance sheet are critical to supporting growth objectives in a volatile rate environment.
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Guidance & Outlook
Revenue Guidance: Forestar is maintaining its fiscal 2026 revenue guidance of $1.6 billion to $1.7 billion.
Lot Delivery Guidance: Forestar expects to deliver 14,000 to 15,000 lots in fiscal 2026.
Capital Investment: The company plans to invest approximately $1.4 billion in land acquisition and development in fiscal 2026, subject to market conditions.
Market Demand and Strategy: Forestar anticipates continued home affordability constraints and cautious consumer sentiment to be near-term headwinds for new home demand. However, the company remains confident in the long-term demand for finished lots and its ability to gain market share in the fragmented lot development industry.
Operational Flexibility: Forestar's national footprint and over 200 active projects provide flexibility to allocate capital based on local market conditions, positioning the company to adapt to changes effectively.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you explain the factors affecting the 21.5% gross margin in Q1 and provide an outlook for the next few quarters?
A:The biggest impact on margin in the quarter was due to the mix of projects delivering lots, which had a lower gross margin. Looking forward, gross margins are expected to remain in the historical range of 21% to 23%, likely at the lower end due to balancing price and pace in a slower demand environment.
Q:What trends are you seeing with D.R. Horton and third-party customers regarding pricing and takedown schedules?
A:There has been a shift from large bulk takedowns to more structured quarterly takedowns, which is now considered a normal market environment. There hasn’t been significant change in pricing, though adjustments are made in slower-paced communities.
Q:Should we expect SG&A spend to remain stable in the coming quarters?
A:Yes, SG&A spend is expected to remain stable as headcount, which is the majority of SG&A costs, has decreased slightly and is expected to stay stable for the rest of the year.
Q:Is the higher ASP (average selling price) due to market conditions or planned strategy, and how does your inventory break out between entry-level and move-up homes?
A:The higher ASP was planned, driven by growth in the development platform in the West, which has higher ASPs. The strategy remains focused on first-time homebuyers and entry-level homes, maintaining affordability as the largest section of the market.
Q:Are you considering rebalancing exposure in Texas and Florida due to higher resale inventory?
A:Yes, the company evaluates market conditions on a monthly and quarterly basis. Development activities in Texas and Florida are being moderated to avoid excess inventory, but these markets are still seen as having strong long-term fundamentals.
Q:How does pulling back on the size of phase developments impact your cost structure and margins?
A:Pulling back on phase developments does not significantly impact the cost structure. It helps reduce cycle times and development costs by improving contractor availability and cooperation with government jurisdictions.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on how they are addressing the challenges in Texas and Florida beyond general statements about moderating development activities and evaluating market conditions. Additionally, there was no detailed breakdown of how the shift to structured quarterly takedowns impacts financial performance.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CFO Treasurer
Demand home
Executive VP
Land development
Officer revenue
Relations SGA
Relations Vice
Relations underwriting
Revenues lot
Treasurer customer
VP CFO
acquisition inventory
agreement Vice
backlog visibility
condition Executive
conference Hibbetts
consumer sentiment
contract money
demand end
development cycle
discipline inventory
end lot
footprint headcount
frame lot
headcount SGA
increase lot
inventory investment
investment liquidity
liquidity flexibility
lot book
lot homebuilder
margin Revenues
margin Vice
margin tract
material Land
purchase frame
remainder Demand
revenue headcount
FOR Transcript
Forestar Group Inc. (FOR) Q1 2026 Earnings Call Transcript
Unknown1-20
The earnings call reveals mixed signals: a 9% revenue increase and strong liquidity are positives, but declining margins and cautious market outlooks are negatives. The Q&A highlights management's strategic moderation in key markets and stable SG&A, but lacks clarity on addressing specific challenges. With a market cap of $1.6 billion, the stock is unlikely to see significant movement, resulting in a neutral prediction.
Forestar Group Inc. (FOR) Q4 2025 Earnings Call Transcript
Unknown10-28
The earnings call presents mixed signals. Strong revenue growth and optimistic future revenue from backlog are positive, but declining margins and dependency on D.R. Horton pose risks. Elevated interest rates and home affordability issues are significant headwinds. The Q&A section reveals management's confidence in market expansion, yet acknowledges market pressures, especially in Texas and Florida. The market cap suggests moderate volatility. Overall, the combination of strong financials but weak guidance and external risks leads to a neutral sentiment, with potential short-term fluctuations due to market conditions.
Forestar Group Inc. (FOR) Q3 2025 Earnings Call Transcript
Positive7-23
The earnings call reveals a strong revenue increase of 23% and an 11% rise in lots sold, indicating high demand and operational efficiency. Despite a slight decrease in net income and gross profit margin, these are attributed to specific factors that are not expected to persist. The company has strong liquidity and a strategic market expansion plan. The Q&A section reinforces these positives, with stable development costs and strategic price increases. Given the market cap's moderate size, the stock price is likely to react positively, within the 2% to 8% range.
Forestar Group Inc. (NYSE:FOR) Q2 2025 Earnings Call Transcript
Unknown4-18
The earnings call presents mixed signals: a 5% revenue increase and strong contracted backlog are positives. However, declining net income, EPS, and margins, along with increased SG&A expenses and weak guidance, point to challenges. The Q&A reveals management's uncertainty about margins and demand, particularly in key regions like Florida. Additionally, no share repurchase program was announced, and there are concerns about federal deregulation. Given the company's small market cap, these factors suggest a negative stock price movement in the range of -2% to -8%.
FOR Report
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
