Forestar Group Inc. Q4 FY2025 earnings call

• The Forestar team finished the year strong, with revenue in the fourth quarter over $670 million and full year $1.7 billion, above guidance. Annual revenues grew 10% and book value per share increased to $34.78, up 11% from a year ago.
• Over 5 years, Forestar invested over $7.3 billion in land acquisition and development, delivering over 75,000 finished lots.
• SG&A expense in the fourth quarter was $42.7 million (6.4% of revenues) and for the year $154.4 million (9.3% of revenues). Employee count increased 24% in fiscal 2025, mostly in local market operations.
• D.R. Horton is the largest customer, with 15% of their starts on Forestar lots; 17% of deliveries in fiscal 2025 were to other customers, including 927 lots to a lot banker for future sale to Horton.
• Underwriting criteria for new projects: minimum 15% pretax return on average inventory and cash back within 36 months.
• Ended the quarter with $968 million of liquidity, $1.8 billion of stockholders' equity, and book value per share up 11% to $34.78.

In the fourth quarter, net income increased 7% to $87 million or $1.70 per diluted share. Revenues for the fourth quarter increased 22% to $670.5 million. For the year, net income totaled $167.9 million or $3.29 per diluted share, and revenue increased 10% to $1.7 billion. In the fourth quarter, 4,891 lots were sold with an average lot sales price of $115,700. For the year, 14,240 lots were sold with an average lot sales price of $108,400. The gross profit margin this quarter was 22.3%, down 160 basis points from a year ago. Pretax income for the fourth quarter was $113.1 million, and for the year was $219.3 million.

• Fiscal 2026 guidance: expect to deliver between 14,000 and 15,000 lots and generate $1.6 billion to $1.7 billion of revenue.
• First quarter 2026 expected to be the lowest delivery quarter of the year, with second half revenues higher.
• Focus on balancing pace and price to maximize returns for each project.

• Affordability constraints and cautious consumer sentiment continue to weigh on new home demand.
• Project-level land acquisition and development loans are less available and more expensive for most competitors, impacting them, while Forestar's capital structure provides operational flexibility and strong liquidity.

Q: Looking at your '26 guidance, it looks like you're expecting deliveries to be up low single digits. Why would you not grow faster as we look into next year?

A: It's just their size; they grow at low single digits, so we need to grow at mid-single digits to maintain pace. We've entered new markets and are growing market share, but it depends on the spring selling season.

Q: You talked about employee count being up 24% in fiscal '25. How should we think about your headcount moving forward and your leverage on SG&A in fiscal '26?

A: Headcount has remained basically flat since the first quarter of fiscal '25 and is expected to continue flat or drift down slightly in fiscal '26.

Q: We saw a builder talking about cost concessions and extended takedown schedules on their lots. Are you seeing any pushback on lot prices or extended takedown schedules?

A: From a land acquisition perspective, we've been successful renegotiating time and terms, but not so much land value; we haven't seen a whole lot of pushback on lot pricing.

Q: Talk about geographically around Texas and Florida trends.

A: Seeing pressure in some markets in Texas and parts of Florida, but still seeing good absorptions at the affordable price point where we concentrate our business.

Q: Drill down on the cadence of deliveries in 2026.

A: Projecting '26 to have a similar cadence to '25, with larger deliveries in the second half of the year.