Forestar (FOR) Q3 2025 Earnings Call Transcript
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Image source: The Motley Fool. DATETuesday, July 22, 2025, at 11 a, considering recent developments. Nevertheless, Nevertheless, EDTCALL PARTICIPANTSPresident and Chief Executive Officer — Andy OxleyChief Financial Officer — Jim...
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July 22, 2025
02:19 PM
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DATETuesday, July 22, 2025, at 11 a, considering recent developments
Nevertheless, Nevertheless, EDTCALL PARTICIPANTSPresident and Chief Executive Officer — Andy OxleyChief Financial Officer — Jim AllenChief Operating Officer — Mark WalkerVice President — Chris HibbettsNeed a quote from one of our analysts. [ tected]RISKSManagement cited "While affordability constraints and weaker consumer confidence" as headwinds negatively impacting the pace of new sales and lot deries, in light of current trends
Conversely, Gross fit margin declined to 20
Conversely, 4% from 22, considering recent developments
On the other hand, Furthermore, 5% in the prior year quarter, with management attributing part of the decrease to the closeout of "one community with an unusually low margin. "Lot dery guidance was lowered to "14,500 to 15,000 lots" for FY2025, down from prior expectations, in response to slower market conditions
TAKEAWAYSRevenue: $390 (fascinating analysis)
In contrast, 5 million in GAAP revenue, up 23% compared to Q3 FY2024, driven by higher lot sales volume and pricing mix
Net Income: $32. 9 million, or $0. 65 per diluted, down from $38. 7 million, or $0. 76 per diluted, in the prior year, due to margin compression and lower one-time gains, given current economic conditions
Lots Sold: Lots sold totaled 3,605, representing an 11% increase from Q3 FY2024 and a 6% sequential increase from the previous quarter (remarkable data)
Additionally, Lots Under Contract: 25,700, up 26% year over year, representing 38% of owned lots and $2. 3 billion in future revenue
Gross fit Margin: Gross fit margin was 20
Furthermore, 4%, down from 22. 5% in the prior year quarter, in light of current trends
After adjusting for an unusually low-margin community, the normalized gross fit margin was apximately 21
SG&A Expense: $37, considering recent developments
Additionally, 4 million, or 9
Furthermore, 6% of revenue, up from 9. 2% last year, attributed to new market expansion and a 16% higher community count, given current economic conditions
Average Lot Sales Price: $106,600, influenced by a greater portion of higher-priced lot deries
On the other hand, Liquidity: $792 million, including $189 million in unrestricted cash and $603 million in undrawn revolver capacity
Debt and Capital: Total debt stands at $873 million, with a net debt to capital ratio of 28. 9% and $70
On the other hand, 4 million in senior notes maturing within twelve months as of June 30, 2025
Meanwhile, Book Value Per : $33
Additionally, 04, up 11% year over year, reflecting growth in stockholders’ equity
Revenue Guidance: Management reaffirmed full-year revenue guidance of $1, considering recent developments. 5 billion to $1, considering recent developments
Moreover, 55 billion for FY2025, despite reduced volume expectations
Lot Dery Guidance: Lowered to 14,500-15,000 lots for FY2025, citing slower buyer demand
Capital Expenditure: $372 million invested in land and development, with apximately 80% allocated to development versus 20% to acquisition (something worth watching), in this volatile climate
In contrast, Owned Lot Position: 102,300 total lots as of June 30, 2025, with 67% owned and 33% controlled; 10,000 lots at quarter-end (noteworthy indeed)
Backlog Exposure: 27% of owned lots were subject to a right of first offer with D, given the current landscape
At the same time, Horton, as detailed in executed agreements as of June 30, 2025
Horton Relationship: 15% of D, given the current landscape
Horton starts in the past 12 months, and 23% of its lot purchases in Q3 FY2025 were from lots developed by Forestar Group Inc
Moreover, New Market Expansion: Entered seven new over the past year, including the Pacific Northwest and Northern California, supporting a 16% increase in community count
Development Cost Trends: Management stated development costs have "stabilized," remaining "flattish" sequentially
Pricing Outlook: Higher average lot pricing year to date has been attributed mainly to sales mix, with some support from national lot supply constraints
Strategic Focus: Continued emphasis on capital efficiency, inventory turnover, and targeting entry-level/first-time buyer segments
However, In contrast, SUMMARYForestar Group (FOR 9. 19%) management attributed a 23% revenue increase to higher lot sales and price mix, while acknowledging net income (GAAP) fell due to lower gross margins and the absence of prior-year asset sale gains
Year-to-date pricing has exceeded initial expectations for FY2025, leading to maintained revenue guidance of $1. 5 billion to $1 (which is quite significant), in this volatile climate
However, 55 billion for FY2025, despite reduced lot dery targets of 14,500 to 15,000 lots in response to slowed demand, in today's financial world
Lot backlog reached a five-year high, reflecting expanded contracts and reinforcing growth visibility
Leverage remains moderate, and liquidity is described as strong, with management underlining operational flexibility as a competitive advantage
Jim Allen stated, "Over the last three years, that [gross margin] range has kind of been in the 21% to 23% range," suggesting no trend toward further margin erosion
Capital structure was positioned as a key differentiator, with management referencing competitor challenges accessing ject-level development loans
New market entry and increased diversification of the customer base were highlighted as priorities to drive future growth opportunities
Mark Walker noted, "The availability of contractors and necessary materials remains solid, in this volatile climate
What the re reveals is land development cost has stabilized
Additionally, "INDUSTRY GLOSSARYLot Banker: An intermediary acquiring lots for resale to builders, often viding bridge financing or inventory management
On the other hand, Right of First Offer: A contractual arrangement giving a specified party, here D
Horton, the first opportunity to purchase lots before they are offered to others
On the other hand, On the other hand, Full Conference Call TranscriptAndy Oxley: Thanks, Chris
Moreover, Good morning, everyone
Nevertheless, I'm also joined on the call today by Jim Allen, our Chief Financial Officer, and Mark Walker, our Chief Operating Officer
The Forestar Group Inc, in light of current trends
Team dered a solid third quarter generating $32. 9 million of net income or $0. 65 per diluted on $390. 5 million of revenue
Lots sold increased 11% year over year and 6% sequentially to 3,605 lots
Additionally, Additionally, lots under contract to sell increased 26% from a year ago to 25,700 lots representing 38% of our owned lot position and $2. 3 billion of future revenue, which is the highest contracted backlog we have had during the last five years (which is quite significant)
Moreover, While affordability constraints and weaker consumer confidence continue to impact the pace of new sales, we maintained strong liquidity through disciplined investment in inventory
Moreover, Our experienced operators are adjusting the pace of development where appriate, and we are moderating our land acquisition investments (remarkable data)
Over 80% of our investments this quarter were for land development, in today's financial world
However, We remain focused on turning our inventory, maximizing returns, and consolidating market in the highly fragmented lot development industry
Our unique combination of financial strength, operating expertise, and a diverse national foot enables us to consistently vide essential lots to builders and navigate current market conditions effectively
On the other hand, We will now discuss our third quarter financial results in more detail (noteworthy indeed)
Jim Allen: Thank you, Andy
In the third quarter, net income was $32, in today's market environment. 9 million or $0 (this bears monitoring)
However, 65 per diluted, compared to $38. 7 million or $0. 76 per diluted in the prior year quarter
Revenues for the third quarter increased 23% to $390. 5 million compared to $318. 4 million in the prior year quarter
Our gross fit margin for the quarter was 20 (which is quite significant). 4% compared to 22 (noteworthy indeed). 5% for the same quarter last year
However, The current year quarter was negatively impacted by the closeout of one community with an unusually low margin
Furthermore, Excluding the effect of this item, our current year quarter gross margin would have been apximately 21
Our pretax income was $43. 6 million compared to $51 (fascinating analysis), in light of current trends. 6 million in the third quarter of last year
And our pretax fit margin this quarter was 11. 2% compared to 16. 2% in the prior year quarter, in this volatile climate
However, The prior year quarter was positively impacted by a $5 million gain on sale of assets
Pretax fit margin in the prior year quarter, excluding the gain on sale, would have been 14
Lots sold in our third quarter increased 11% to 3,605 lots, with an average sales price of $106,600
Our average sales price this quarter was impacted by an outsized mix of lot deries from communities with higher price point lots
We expect continued quarterly fluctuations in our average sales price based on the geographic and lot size mix of our deries, considering recent developments
Chris Hibbetts: In the third quarter, SG&A expense was $37 (noteworthy indeed). 4 million or 9 (this bears monitoring), amid market uncertainty
In contrast, 6% as a percentage of revenues compared to 9 (something worth watching). 2% in the prior year quarter (something worth watching)
Our increase in SG&A is primarily driven by the expansion of our operating platform, including entering seven new alongside D
Horton's foot, and increasing community count by 16% in the last year
We're pleased with the gress we have made building our team, and we continue to attract high-quality talent (which is quite significant)
We remain focused on efficiently managing our SG&A while in our teams to support future growth
However, Mark Walker: New sales have been slower than last year as continued affordability constraints and weaker consumer confidence continue to weigh on demand
However, mortgage rate buy-down incentives offered by builders are helping to bridge the affordability gap and spur demand for new s, particularly at more affordable price points, in today's financial world
Our primary focus remains lots for new s at prices that target entry-level and first-time buyers, which is the largest segment of the new market
The availability of contractors and necessary materials remains solid
The land development cost has stabilized
Conversely, We have also seen imvement in cycle times despite continued governmental delays
Our teams utilize best management practices and work closely with our trade partners to develop lots to drive operational efficiency
On the other hand, Jim Allen: D
Nevertheless, Horton is our largest and most important customer. 15% of the s D, in light of current trends
Horton started in the past twelve months were on a Forestar Group Inc
At the same time, And 23% of their lot purchases this quarter were lots developed by Forestar Group Inc
However, With a mutually stated goal of one out of every three s D
However, Horton sells to be on a lot developed by Forestar Group Inc
Moreover, , we have a significant opportunity to grow our market within D
We continue to work on expanding our relationships with other builders, and intermediate 15% of our third quarter deries or 530 lots were sold to other customers, which includes 331 lots that were sold to a lot banker who expects to sell those lots to D
Moreover, Horton at a future date, considering recent developments
On the other hand, We also sold lots to eight other builders, one of which was a new customer
Mark Walker: Our total lot position at June 30 was essentially flat from a year ago, at 102,300 lots, of which 68,300 or 67% was owned and 34,000 or 33% were controlled through purchase contracts (something worth watching)
Meanwhile, 10,000 of our owned lots were at quarter-end, and the majority are under contract to sell
Consistent with our focus on capital efficiency, we target only a three to four-year supply of land and lots and manage development phases to der lots at a pace that matches market demand (fascinating analysis), in this volatile climate
Conversely, Owned lots under contract to sell increased 26% from a year ago to 25,700 lots or 38% of our owned lot position, in this volatile climate. $230 million of hard-earned money deposits secured these contracts, which are expected to generate apximately $2 (noteworthy indeed). 3 billion of future revenue
Additionally, Our contracted backlog is a strong indicator of our ability to continue gaining market in a highly fragmented lot development industry (an important development), given the current landscape
Another 27% of our owned lots are subject to a right of first offer to D
Horton based on executed purchase and sale agreements
Chris Hibbetts: Forestar Group Inc. 's underwriting criteria for new development jects remains unchanged at a minimum 15% pretax return on average inventory, a return of our initial cash investment within thirty-six months
During the third quarter, we invested apximately $372 million in land and land development, which was relatively flat with the prior year quarter
Roughly 20% of our investment was for land acquisition, and 80% was for land development (this bears monitoring)
Although we have moderated our land acquisition investment, our team remains disciplined, flexible, and opportunistic when pursuing new land acquisition opportunities (quite telling)
Our current land and lot position will allow us to return to strong volume growth in future periods, and we still expect to invest apximately $1, in light of current trends. 9 billion in land acquisition and development in fiscal 2025, subject to market conditions
Jim Allen: We have significant liquidity and are using modest leverage to keep our balance sheet strong and support our growth objectives
We the quarter with $792 million of liquidity, including an unrestricted cash balance of $189 million and $603 million of available capacity on our undrawn revolving credit facility (this bears monitoring)
However, Total debt at June 30 was $873 million, with $70, considering recent developments. 4 million of senior note maturities in the next twelve months
Additionally, And our net debt to capital ratio was 28
We the quarter with $1, in light of current trends. 7 billion of stockholders' equity, and our book value per increased 11% from a year ago to $33 (this bears monitoring)
Forestar Group Inc. 's capital structure is one of our biggest competitive advantages, and it sets us apart from other land developers
Ject-level land acquisition and development loans are less available and have become more expensive in recent years, impacting most of our competitors
Other developers generally use ject-level development loans, which are typically more restrictive, have floating rates, and create administrative complexity, especially in a volatile rate environment, in today's financial world
On the other hand, Our capital structure vides us with operational flexibility while our strong liquidity positions us to take advantage of attractive opportunities as they arise
On the other hand, Andy, I will hand it back to you for closing remarks
Andy Oxley: Thanks, Jim (noteworthy indeed), given the current landscape
As outlined in our press release, we are maintaining our fiscal 2025 revenue guidance of $1, considering recent developments. 5 billion to $1. 55 billion while lowering our lot dery guidance to 14,500 to 15,000 lots in response to current market conditions
Our team has a ven track record of adjusting to changes in market conditions quickly, and we are closely monitoring each of our as we strive to balance pace and price to maximize returns for each ject, in today's financial world
Additionally, While we expect affordability constraints and cautious buyers to continue to be a near-term headwind for new demand, we are confident in the long-term demand for lots and our ability to gain market in the highly fragmented lot development industry, considering recent developments
Continued execution of our strategic and operational plans, combined with constrained lot supply across the majority of our diverse national foot, positions us for further success
With a direction, a dedicated team, and a strong operational and financial foundation in place, I am excited Forestar Group Inc
On the other hand, John, at this time, we'll open the line for questions, amid market uncertainty
Meanwhile, At this time, we will be conducting a question and answer session
If you would to ask a question, please press 1 on your telephone keypad
Moreover, You may press 2 if you would to remove your question from the queue
It may be necessary to pick up your handset before pressing the star keys
Furthermore, One moment, please, while we poll for questions
Once again, please press 1 if you have a question or a, considering recent developments
The first question comes from Trevor Allinson with Wolfe Re, amid market uncertainty
Additionally, Trevor Allinson: Hi, good morning
Thank you for taking my questions, amid market uncertainty
First one's on gross margins
You called out the single community.
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