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FG

Forestar Group Inc. (FOR)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered 2,333 lots and $250.4M revenue with diluted EPS of $0.32; net income fell 57% y/y to $16.5M as lower deliveries reduced operating leverage and SG&A ran elevated due to platform expansion .
  • Gross profit margin was 22.0% vs 23.8% y/y (23.8% included an unusually high-margin closeout last year); pretax margin was 8.7% vs 16.7% y/y, reflecting lower volumes and mix .
  • FY2025 guidance maintained: 16,000–16,500 lots and $1.60–$1.65B revenue; management expects Q1 to be the lowest delivery quarter and second-half revenue above first-half .
  • Liquidity remained strong ($132.0M cash, $512.5M revolver availability, $644.5M total); facility amended in December 2024 to extend maturity to Dec 2029 and increase commitments to $640M; S&P upgraded corporate rating to BB- in January, reinforcing capital access and flexibility .
  • Consensus estimates from S&P Global were unavailable at time of analysis; we cannot assess beats/misses vs Street for Q1 2025.

What Went Well and What Went Wrong

What Went Well

  • Strong capital structure and liquidity: $644.5M total liquidity; revolver maturity extended to 2029 with increased commitments and reduced pricing, plus S&P credit upgrade to BB- in January 2025, enhancing funding flexibility and competitiveness .
  • Backlog and pipeline expanded: owned and controlled lots rose to 106,000; owned lots under contract increased to 25,200 with ~$2.2B future revenue, supported by $207M hard earnest money deposits — a key share-gain indicator in a fragmented market .
  • ASP tailwind from mix: average sales price per lot rose to $105,500 vs $96,400 y/y; management noted one infill project with high lot prices skewed ASP higher, and expects low-to-mid single-digit price escalators .

Quotes

  • “We continue to expect that the first quarter will be our lowest delivery quarter… In fiscal 2025, we still expect to deliver between 16,000 and 16,500 lots, generating $1.6 billion to $1.65 billion of revenue.” .
  • “Forestar is uniquely positioned to gain market share in the highly fragmented lot development industry… our guidance for fiscal 2025 remains unchanged.” .

What Went Wrong

  • Volume-driven operating deleverage: pretax margin fell to 8.7% from 16.7% y/y; SG&A elevated due to ~30% employee count growth and new market setup, though CFO expects SG&A to moderate and be high-single digits as % of revenue for FY2025 .
  • Deliveries down y/y: lots sold decreased 26% to 2,333 vs 3,150 y/y; revenues declined to $250.4M from $305.9M y/y; net income down 57% to $16.5M .
  • Cycle times remain above historical norms due to governmental delays, despite ~30-day improvement this quarter and 120 days off the prior peak; this continues to limit upside on lot deliveries .

Financial Results

MetricQ1 2024 (Dec 31, 2023)Q3 2024 (Jun 30, 2024)Q4 2024 (Sep 30, 2024)Q1 2025 (Dec 31, 2024)
Revenues ($USD Millions)$305.9 $318.4 $551.4 $250.4
Net Income ($USD Millions)$38.2 $38.7 $81.6 $16.5
Diluted EPS ($USD)$0.76 $0.76 $1.60 $0.32
Gross Profit Margin (%)23.8 22.5 —22.0
Pretax Profit Margin (%)16.7 16.2 19.7 8.7
Lots Sold (Units)3,150 3,255 5,374 2,333
Consensus Revenue ($USD Millions)———Unavailable (SPGI limit)
Consensus EPS ($USD)———Unavailable (SPGI limit)

Segment/Revenue components (Q1 year-over-year)

ComponentQ1 2024 ($MM)Q1 2025 ($MM)
Development projects$303.5 $241.0
Lot banking projects—$5.2
Change in contract liabilities$0.7 $1.2
Deferred development projects$1.3 —
Tract sales and other$0.4 $3.0
Total Revenues$305.9 $250.4

Lots mix and ASP (Q1 year-over-year)

KPIQ1 2024Q1 2025
Lots sold – Development projects3,150 2,291
Lots sold – Lot banking—42
Total lots sold3,150 2,333
Average sales price per lot$96,400 $105,500

Balance sheet & liquidity (quarterly)

MetricSep 30, 2024Dec 31, 2024
Cash & cash equivalents ($MM)$481.2 $132.0
Debt ($MM)$706.4 $806.8
Stockholders’ equity ($MM)$1,594.1 $1,613.1
Revolver availability ($MM)$377.2 $512.5
Total liquidity ($MM)$858.4 $644.5
Net debt to total capital (%)12.4% 29.5%
Book value per share ($)$31.47 $31.84

Lot position and backlog

MetricSep 30, 2024Dec 31, 2024
Lots owned57,800 68,300
Lots controlled37,300 37,700
Total owned & controlled95,100 106,000
Owned lots under contract (total)21,000 25,200
Under contract to sell to D.R. Horton20,500 24,500
Under contract to other customers500 700
Owned lots subject to ROFO to D.R. Horton17,200 19,300
Fully developed owned lots6,300 8,100
Hard earnest money on contracts ($MM)—$207
Future revenue represented by owned lots under contract ($B)—~$2.2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Lot deliveriesFY202516,000–16,500 lots 16,000–16,500 lots Maintained
RevenueFY2025$1.60–$1.65B $1.60–$1.65B Maintained
Land acquisition & development investmentFY2025—~$2.0B plan New/Specified
Quarterly cadenceFY2025—Q1 lowest; H2 revenue > H1 Clarified
SG&A as % of revenueFY2025—High-single digits (company expectation) New/Color (non-formal guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 2024)Previous Mentions (Q-1: Q4 2024)Current Period (Q1 2025)Trend
Demand for affordable lotsSolid demand; constrained supply supports volumes Strong Q4, resilient despite elevated rates Demand “remains solid”; builders lining up for new communities Stable to improving
Cycle times & government delaysIncreased cycle times; governmental delays limiting upside Noted operational strength; delays implied by prior narrative Improved ~30 days this quarter; ~120 days off peak; still above norms due to entitlements Improving but still elevated
Pricing & ASPASP $94k; mix drives fluctuations Revenue guidance unchanged despite slightly lower volume guidance ASP $105.5k; one infill project skewed ASP; expect low-to-mid single-digit escalators Mixed-driven uplift
SG&A & leverageSG&A up with 33% employee growth; 9.2% of revenue Not emphasized in press release SG&A to moderate; high-single-digit % expected for FY2025 Moderating ahead
D.R. Horton relationshipGoal: 1 in 3 DHI homes on Forestar lots; 11% of deliveries to other builders DHI relationship central; expanded operations 15% of DHI starts on Forestar lots TTM; 9% of Q1 deliveries to other builders, including 2 new customers Expanding share
Capital structure & liquidity~$745M liquidity; revolver capacity; net debt/cap 18.7% $858.4M liquidity; net debt/cap 12.4% $644.5M liquidity; revolver extended to 2029; S&P rating upgrade to BB- Strong; proactive refinancing
Land prices & acquisitionNo softening in land prices; disciplined acquisition Continued investments and strong pipeline No softening in land prices; disciplined, flexible, opportunistic Steady discipline

Management Commentary

  • Strategic focus: “We remain focused on investing in compelling land parcels turning our inventory, maximizing returns and consolidating market share in the highly fragmented lot development industry.” .
  • Market positioning: “Forestar is uniquely positioned to gain market share in the highly fragmented lot development industry... guidance for fiscal 2025 remains unchanged.” .
  • Customer strategy: “D.R. Horton is our largest and most important customer… We have significant opportunity to grow our market share within D.R. Horton… we also continue to work on expanding our relationships with other homebuilders.” .
  • Operational backdrop: “Availability of contractors and necessary materials has improved, and the cost of developing land has stabilized… government delays continue to extend cycle times above historical norms.” .
  • Capital structure: “We… amended [the] credit facility… extended the maturity… reduced pricing and increased… commitments to $640 million.” . “We were also pleased to receive an upgrade to our corporate credit rating from S&P… from B+ to BB-.” .

Q&A Highlights

  • Cost stabilization and cycle times: Development costs stable over TTM; cycle times decreased ~30 days this quarter and ~120 days from peak; entitlement approvals remain the bottleneck .
  • SG&A outlook: Elevated from expansion, but expected to moderate; management anticipates high-single digits SG&A as % of revenue for FY2025 .
  • ASP dynamics: Q1 ASP uplift driven by one high-priced infill project; expectation for low-to-mid single-digit escalators in lot price going forward .
  • Builder demand and takedowns: Demand remains strong; builders eager for new communities; occasional project-specific inventory build but overall solid demand for finished lots .
  • Delivery cadence: Q1 seasonally lowest; second-half revenue expected to exceed first half; Q4 was unusually strong, Q1 normalizing .

Estimates Context

  • Street consensus (S&P Global) for Q1 2025 EPS and revenue was unavailable due to SPGI daily request limit; therefore, a beat/miss assessment vs estimates cannot be provided at this time.
  • Based on company guidance and commentary, FY2025 targets remain intact (16,000–16,500 lots; $1.60–$1.65B revenue), and management expects stronger second-half performance .

Key Takeaways for Investors

  • Q1 softness was anticipated seasonality; guidance unchanged and second-half weighted delivery/revenue implies a recovery trajectory within FY2025 .
  • Elevated SG&A from platform build-out pressured margins; expect moderation through FY2025, supporting improved operating leverage if deliveries step up as planned .
  • Backlog strength and ROFO with D.R. Horton underpin visibility: 25,200 owned lots under contract (~$2.2B future revenue) plus $207M hard earnest money deposits provide confidence in forward volumes .
  • Mix-supported ASP resilience (Q1 infill skew) and expected low-to-mid single-digit price escalators provide revenue support even as volumes normalize .
  • Capital flexibility enhanced: Revolver extended to 2029 with higher commitments and reduced pricing; S&P upgrade to BB- and subsequent notes/tender activity in March indicate proactive liability management and improved funding conditions .
  • Watch cycle times: Progress but still above normal due to governmental approvals; faster normalization would be a margin and volume catalyst .
  • Near-term trading setup: Without Street estimates, focus on April Q2 delivery cadence and margin trajectory; confirmation of SG&A moderation and H2 weighting could re-rate sentiment; monitor any follow-on capital markets actions and lot price trends .