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LLM Evaluations

Transcript Summary

Forestar Group Inc. delivered a solid performance in the second quarter of 2026, with revenue increasing 7% to $374.3 million and pre-tax income rising 8% to $43.9 million. The company sold 2,938 lots during the period, maintaining a strong backlog that supports approximately $2.2 billion in future revenue. Despite a slight decrease in gross margins due to planned write-offs, the adjusted margin remained healthy at 22.9%. A key pillar of Forestar’s strategy remains its partnership with D.R. Horton, though it continues to expand its reach, selling to 12 other builders this quarter. With over $1 billion in liquidity, Forestar is well-positioned to navigate current market challenges such as home affordability and cautious buyer sentiment. Management has updated its fiscal 2026 delivery guidance to 14,000–14,500 lots and expects to invest $1.4 billion in land development. The firm remains focused on its disciplined underwriting standards and capital efficiency, aiming to increase its market share in the fragmented land development sector. Executives expressed optimism about long-term demand for finished lots and the flexibility provided by their diverse national footprint and strong capital structure.

5-year share-count history (top 10 holders by peak, incl. exited) + price

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Forestar Group Inc.: Administrative header lacks substantive forensic depth for meaningful analysis

Full Earnings Call Transcript — Q2 • 2026-04-21

Operator: Good morning, and welcome to Forestar Group Inc.’s second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow. If you wish to ask a question during today’s Q&A session, please press [instructions omitted]. Please note this conference is being recorded. I will now turn the call over to Chris Hibbetts, Vice President of Finance and Investor Relations for Forestar Group Inc.
Chris Hibbetts: Thank you, Paul. Good morning. And welcome to our call to discuss Forestar Group Inc.’s second quarter results. Before we get started, I want to remind everyone that today’s call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although Forestar Group Inc. believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to Forestar Group Inc. on the date of this conference call, and we do not undertake any obligation to update or revise any forward-looking statements publicly. Additional information about factors that could lead to material changes in performance is contained in Forestar Group Inc.’s Annual Report on Form 10-K and its most recent Quarterly Report on Form 10-Q, both of which are filed with the Securities and Exchange Commission. Our earnings release is on our website at investor.forestar.com, and we plan to file our 10-Q later this week. After this call, we will post an updated investor presentation to our Investor Relations site under Events and Presentations for your reference. I will now turn the call over to Andy Oxley, our President and CEO.
Andy Oxley: Thanks, Chris. Good morning, everyone. I am also joined on the call today by Jim Allen, our Chief Financial Officer, and Mark Walker, our Chief Operating Officer. The Forestar Group Inc. team achieved solid second quarter results, generating revenues of $374.3 million, a 7% increase from the prior-year quarter, on 2,938 lots sold. Our pre-tax income increased 8% from the prior-year quarter to $43.9 million. Our book value per share increased 10% from a year ago to $35.66, and our contracted backlog remains strong with visibility towards $2.2 billion of future revenue. Persistent affordability constraints and cautious consumer sentiment continue to impact the pace of new home sales. In response, we are managing our inventory investments with discipline and flexibility, which allowed us to end the quarter with more than $1 billion of liquidity. We remain focused on turning our inventory, maximizing returns, and consolidating market share in the highly fragmented lot development industry. Our unique combination of financial strength, operating expertise, and a diverse national footprint enables us to consistently provide essential finished lots to homebuilders and navigate current market conditions effectively. We will now discuss our second quarter financial results in more detail. Jim.
Jim Allen: Thank you, Andy. In the second quarter, net income attributable to Forestar Group Inc. increased 2% to $32.1 million, or $0.63 per diluted share, compared to $31.6 million, or $0.62 per diluted share, in the prior-year quarter. Our pre-tax income increased 8% to $43.9 million, compared to $40.7 million in the second quarter of last year, and our pre-tax profit margin this quarter was 11.7% versus 11.6% in the prior-year quarter. Revenues for the second quarter increased 7% to $374.3 million, compared to $351.0 million in the prior-year quarter. The current quarter includes $42.9 million in tract sales and other revenue, which was primarily from sales of residential and commercial tracts and, to a lesser extent, the sale of a multifamily site. Mark.
Mark Walker: We sold 2,938 lots in the quarter, with an average sales price of $112,800. We expect continued quarterly fluctuations in our average sales price based on the geographic and lot-size mix of our deliveries. Our gross profit margin for the quarter was 21.4%, compared to 22.6% for the same quarter last year. The current quarter margin includes $6.3 million of planned option charges related to deposits and pre-acquisition cost write-offs, compared to $0.9 million in the prior-year quarter. Excluding the effect of the net change in write-offs, our current quarter gross margin would have been approximately 22.9%. Chris.
Chris Hibbetts: In the second quarter, SG&A expense declined 1% to $37.9 million, or 10.1% as a percentage of revenues, compared to $38.4 million, or 10.9%, in the prior-year quarter. Our headcount decreased 8% from a year ago as we remain focused on efficiently managing SG&A while maintaining our strong operational teams across our national footprint. To support future growth, we expect our headcount to remain relatively flat for the remainder of the year. Jim.
Jim Allen: D.R. Horton is our largest and most important customer. Fourteen percent of the homes D.R. Horton started in the past twelve months were on a Forestar Group Inc.-developed lot, with a mutually stated goal of one out of every three homes D.R. Horton sells to be on a lot developed by Forestar Group Inc. We have significant opportunity to grow our market share within D.R. Horton. We also continue to expand our relationships with other homebuilders. Seventeen percent of our second quarter deliveries, or 488 lots, were sold to other customers. We sold lots to 12 other homebuilders this quarter, including three new customers. Mark.
Mark Walker: Our lot position at March 31, 2026 was 94,400 lots, of which 63,500, or 67%, were owned, and 30,900, or 33%, were controlled through purchase contracts. 9,300 of our owned lots were finished at quarter-end; the majority are under contract to sell. Consistent with our focus on capital efficiency, we target owning a three- to four-year supply of land and lots and manage development phases to deliver finished lots at the pace that matches the market. At quarter-end, 24,100, or 38%, of our owned lots were under contract to sell. $209 million of hard earnest money deposits secured these contracts, which are expected to generate approximately $2.2 billion of future revenue. Our contracted backlog is a strong indicator of our ability to continue gaining market share in the highly fragmented lot development industry. Another 29% of our owned lots are subject to a right of first offer to D.R. Horton based on executed purchase and sale agreements. Forestar Group Inc.’s underwriting criteria for new development projects remains unchanged at a minimum 15% pre-tax return on average inventory and a return of our initial cash investment within 36 months. During the second quarter, we invested approximately $279 million in land and land development. Roughly 80% of our investment was for land development and 20% was for land acquisition. Although we have moderated our land acquisition investment over the last year, our team remains disciplined, flexible, and opportunistic when pursuing new land acquisition opportunities. Our current land and lot position will allow us to return to strong volume growth in future periods. We still expect to invest approximately $1.4 billion in land acquisition and development in fiscal 2026, subject to market conditions. Jim.
Jim Allen: We have significant liquidity and are using modest leverage to keep our balance sheet strong and support our growth objectives. We ended the quarter with more than $1 billion of liquidity, including an unrestricted cash balance of $362 million and $672 million of available capacity on our undrawn revolving credit facility. During the quarter, we increased the capacity of our senior unsecured revolving credit facility by $50 million. In addition, we collected $130.9 million of reimbursement related to infrastructure costs in utility and improvement districts. Total debt at March 31, 2026 was $793.5 million, with no senior note maturities in the next twelve months. Our net debt-to-capital ratio was 19.2%. We ended the quarter with $1.8 billion of stockholders’ equity, and our book value per share increased 10% from a year ago to $35.66. Forestar Group Inc.’s capital structure is one of our biggest competitive advantages, and it sets us apart from other land developers. Project-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 project-level development loans, which are typically more restrictive, at floating rates, and create administrative complexity, especially in a volatile rate environment. Our capital structure provides us with operational flexibility, while our strong liquidity positions us to take advantage of attractive opportunities as they arise. Andy, I will hand it back to you for closing remarks.
Andy Oxley: Thanks, Jim. The Forestar Group Inc. team remained focused on execution in the second quarter, delivering higher revenues and profits and a stronger balance sheet. As outlined in our press release, we are updating our fiscal 2026 lot delivery guidance to 14,000 to 14,500 lots, while maintaining our revenue guidance of $1.6 billion to $1.7 billion. Our teams have a proven track record of adjusting quickly to changing market conditions. We are closely monitoring each of our markets as we strive to balance pace and price and maximize returns for each project. Our national footprint and more than 200 active projects represent a strategic advantage, providing flexibility to allocate capital based on local market conditions. While home affordability constraints and cautious homebuyers are expected to remain near-term headwinds for home demand, we are confident in the long-term demand for finished lots and our ability to gain market share in the highly fragmented lot development industry. Consistent execution of our strategic and operational plan, combined with a constrained supply of finished lots across much of our diverse national footprint, positions us well for further success. With a clear strategy, a strong team, and a solid operational and financial foundation, we are optimistic about Forestar Group Inc.’s future. Paul, at this time, we will open the line for questions.
Operator: Thank you. At this time, we will be conducting a question-and-answer session. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question today will be from Ryan Gilbert from BTIG. Ryan, your line is live.
Analyst: Thanks. Hi. Good morning, guys. Was hoping you could talk a little bit more about your goals for market share in the context of the reduction that we have seen in controlled lots, I guess this quarter, but then also the last couple quarters as well?
Andy Oxley: Good morning. What we have encountered is a lot of lots in the homebuilders’ portfolios that they gradually worked through in Q4 and Q1. With accelerating starts and sales in Q2, we anticipate going back to a more robust lot closing pattern in 2026.
Analyst: Okay. Got it. And then I was hoping you could expand a bit on the land option charges that you incurred in the quarter. Was that concentrated in a single community or a handful of communities? Was it more widespread? And how are you thinking about that line going forward?
Andy Oxley: It was in a handful of communities, but the team remains focused and disciplined on our personal land acquisitions. If a project falls outside our underwriting standards, the team works to bring that project back in line, or we simply move on from the project. As we evaluate these month to month and quarter to quarter, the team tries to work them back into the queue, but our pipeline remains very robust, so we do not have to purchase assets that do not meet our standards.
Analyst: Okay. Got it. Last one for me: given the cash position and where the stock is trading, what is your appetite, or how are you thinking about share repurchases here?
Jim Allen: We continue to believe that our best use of cash is investing for future growth of the business. However, maintaining strong liquidity gives us flexibility to respond to further changes in market conditions, as well as the ability to take advantage of opportunities as they arise.
Analyst: Okay. Thanks very much.
Operator: Thank you. Again, that will be star one on your phone at this time. The next question is coming from Trevor Allinson from Wolfe Research. Trevor, your line is live.
Trevor Allinson: Hi. Good morning. Thank you for taking my questions. First question is on demand trends you have seen from other builders, other than D.R. Horton. I believe your sales to those builders were down close to 50% year-over-year, and if I recall correctly, last quarter they were up. Can you just talk about the trends there? Is that just a comp issue due to sales to a lot banker? Any color on demand from those other customers would be helpful.
Andy Oxley: We are still seeing and hearing strong demand from other builders, so that remains strong. To my earlier point, the industry continues to work down inventory levels, so I think it is really based on the cadence of when those communities are coming online.
Jim Allen: And to your point, last year we did have 362 lots that were sold to a lot banker, so that influenced the number from last year.
Trevor Allinson: Okay. Gotcha. Makes sense. And then the next question on fuel prices, obviously moving higher across the country. Just remind us what portion of development costs fuel accounts for. Are you able to pass those along to your customers, or any concerns about gross margins as we get into the back half of this year and into early next year from higher fuel costs?
Mark Walker: As of today, we are not seeing cost increases due to fuel charges, but we are closely monitoring it. Contractor availability continues to free up, which is contributing to cost and time improvements.
Trevor Allinson: Okay. Got it. Thank you for all the color, and good luck moving forward.
Operator: Thank you. There are no other questions at this time. I would now like to hand the call back to Andy Oxley for any closing remarks.
Andy Oxley: Thank you, Paul, and thank you to everyone on the Forestar Group Inc. team for your focus and hard work. Stay disciplined, flexible, and opportunistic as we continue to consolidate market share. We appreciate everyone’s time on the call today and look forward to speaking with you again to share our third quarter results on Tuesday, July 21, 2026.
Operator: Thank you. This does conclude today’s conference, and you may disconnect your lines at this time. Thank you for your participation.