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FG

Forestar Group Inc. (FOR)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue rose 5% year over year to $351.0M while diluted EPS fell to $0.62; gross and pretax margins compressed versus last year due to nonrecurring high-margin items in the prior-year quarter and less SG&A leverage .
  • Results were below Wall Street consensus: revenue $351.0M vs $363.2M* and EPS $0.62 vs $0.73*; Q1 also missed, marking two consecutive estimate misses (see Estimates Context) .
  • Management lowered FY25 guidance to 15,000–15,500 lots and $1.50–$1.55B revenue from 16,000–16,500 lots and $1.60–$1.65B, citing a slower-than-expected spring selling season and affordability headwinds; land investment trimmed to ~$1.9B from ~$2.0B .
  • Balance sheet strengthened: issued $500M 6.50% notes due 2033 and tendered ~$329.4M of 3.85% notes due 2026; liquidity ended the quarter at $792.0M, with net debt-to-capital at 29.8% .

What Went Well and What Went Wrong

What Went Well

  • Lots sold increased 4% YoY to 3,411 and 46% sequentially; owned lots under contract climbed 41% YoY to 25,400 (37% of owned lots), representing ~$2.3B of future revenue—“the highest contracted backlog we've had during the last 4 years” .
  • Diversification of customer base: 27% of Q2 deliveries (910 lots) sold to customers other than D.R. Horton, including a lot banker assignment; added relationships with 10 other builders (2 new) .
  • Capital structure optimized: $500M 6.50% senior notes due 2033 issued and ~$329.4M tendered on 2026 notes, extending maturities and enhancing liquidity; liquidity $792.0M at quarter-end .

What Went Wrong

  • Margin compression: gross margin 22.6% vs 24.9% last year; pretax margin 11.6% vs 17.6% YoY, driven by prior-year nonrecurring high-margin items and less SG&A leverage .
  • SG&A increased 32% YoY to $38.4M, with SG&A as % of revenue elevating to 10.9% (vs 8.7% last year) due to a 29% increase in headcount to support new markets and community growth .
  • FY25 guidance cut: lots and revenue lowered due to affordability constraints and cautious consumers slowing spring demand; land investment moderated to ~$1.9B .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$551.4 $250.4 $351.0
Diluted EPS ($)$1.60 $0.32 $0.62
Gross Profit Margin %—22.0% 22.6%
Pretax Profit Margin %19.7% 8.7% 11.6%
Lots Sold (units)5,374 2,333 3,411
SG&A Expense ($USD Millions)$32.0 $36.0 $38.4

Actuals vs Consensus – Q2 2025

MetricActual Q2 2025Consensus Q2 2025Surprise (%)
Revenue ($USD Millions)$351.0 $363.15*-3.4%
EPS ($)$0.62 $0.73*-15.2%

Consensus estimates marked with *; Values retrieved from S&P Global.

Revenue Components

Component ($USD Millions)Q2 2024Q2 2025
Development projects$323.1 $338.9
Lot banking projects$0.7 $8.0
Decrease in contract liabilities$2.1 —
Deferred development projects$1.7 —
Tract sales and other$6.2 $4.1
Total revenues$333.8 $351.0

KPIs

KPIQ1 2025Q2 2025
Lots Sold (units)2,333 3,411
Average Sales Price per Lot ($)$105,500 $101,700
Owned & Controlled Lots (units)106,000 105,900
Owned Lots Under Contract (units; % of owned)25,200 (37%) 25,400 (37%)
Owned Lots Subject to ROFO to D.R. Horton (units)19,300 19,200
Owned Lots Fully Developed (units)8,100 9,500
Liquidity ($USD Millions)$644.5 $792.0
Net Debt to Total Capital (%)29.5% 29.8%
Stockholders’ Equity ($USD Billions)$1.614 $1.646
Book Value per Share ($)$31.84 $32.36
Land Acquisition & Development Investment ($USD Millions)$684.4 ~$340

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Lots deliveredFY 202516,000–16,500 15,000–15,500 Lowered
RevenueFY 2025$1.60–$1.65B $1.50–$1.55B Lowered
Land acquisition & development investmentFY 2025~$2.0B ~$1.9B Lowered
SG&A as % of revenueFY 2025High single digits (commentary) High single digits (reaffirmed) Maintained/clarified

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24 and Q1’25)Current Period (Q2’25)Trend
Affordability & consumer confidenceQ1: Affordability challenges; builders using rate buydowns; demand solid at affordable price points Slower-than-expected start to spring selling; affordability constraints and cautious buyers cited Deteriorating
D.R. Horton relationship & shareQ1: 15% of Horton starts on Forestar lots; goal 1/3; expanding with other builders 22% of Horton finished lot purchases this quarter; backlog strong; opportunity to gain share Strengthening
Land prices & seller termsQ1: No softening in land prices; stabilization of development costs Sellers more flexible on terms, not price; supports ROI model Stable on price; terms improving
Cycle times & government delaysQ1: ~120 days improved from peak; still governmental delays Continued improvement; delays persist; best practices to enhance efficiency Gradual improvement
Tariffs impact on costs—Too early to tell; minimal impact observed so far Neutral
Regional demand—Weakness in Florida, less in Texas; strength in Las Vegas and Carolinas; pace returning to pre-COVID patterns Mixed; normalizing pace
Capital structure actionsQ4: Amended credit facility; liquidity strong; S&P upgrade to BB- Issued $500M 2033 notes; tendered ~$329.4M of 2026 notes; liquidity $792M; net debt-to-cap 29.8% Improved duration/liquidity
Margins outlookQ1: Gross margin ~22%; stability cited; high-margin legacy item last year Gross margin 22.6%; prior-year had nonrecurring high-margin items; margins seen stable 21–23% longer-term Stable ex one-offs

Management Commentary

  • “Lots under contract to sell increased 41% from a year ago to 25,400 lots… the highest contracted backlog we’ve had during the last 4 years… representing $2.3 billion of future revenue.” – CEO Anthony Oxley .
  • “We now expect to deliver between 15,000 and 15,500 lots this year, generating between $1.5 billion and $1.55 billion of revenue.” – CEO Anthony Oxley .
  • “Our gross profit margin… 22.6% vs 24.9% last year… excluding prior-year nonrecurring items, prior-year Q2 gross margin would have been ~22.5%.” – CFO James Allen .
  • “We would expect our headcount to remain basically flat for the remainder of the year… SG&A as a percentage of revenues… to come down to the high single digits for the year as we gain more revenue leverage.” – CFO James Allen .
  • “Forestar’s capital structure is one of our biggest competitive advantages… the successful transaction extended our debt maturity profile while enhancing our liquidity position.” – CFO James Allen .

Q&A Highlights

  • Guidance cut rationale: Prospective community-level adjustments due to inventory build-ups; margins expected to remain relatively stable despite lower volumes .
  • Lot banker assignments: Forestar sells to homebuilders who may assign contracts to lot bankers; pricing and returns consistent with builder contracts .
  • SG&A trajectory: Headcount growth largely behind; SG&A rate expected to moderate to high single digits with second-half revenue leverage .
  • Tariffs: Too early to assess; minimal cost impact observed; scale and trade relationships expected to limit impacts .
  • Regional dynamics: Weakness in Florida, less in Texas; strength in Las Vegas and Carolinas; pace normalizing to pre-COVID takedowns rather than bulk takes .

Estimates Context

  • Q2 2025: Revenue $351.0M vs $363.15M*; EPS $0.62 vs $0.73*; both missed. Estimate counts: 4 for revenue and EPS* .
  • Q1 2025: Revenue $250.4M vs $328.79M*; EPS $0.32 vs $0.70*; missed both; estimate counts: 3 for revenue and EPS* .

Consensus estimates marked with *; Values retrieved from S&P Global.

MetricQ1 2025 ActualQ1 2025 Consensus*Q2 2025 ActualQ2 2025 Consensus*
Revenue ($USD Millions)$250.4 $328.79*$351.0 $363.15*
EPS ($)$0.32 $0.70*$0.62 $0.73*
# of Estimates (Revenue / EPS)3 / 3*—4 / 4*—

Key Takeaways for Investors

  • Two straight quarterly misses vs consensus and an FY25 guidance cut suggest near-term estimate risk; expect sell-side models to lower volumes, revenue, and SG&A leverage assumptions.
  • Despite softer spring demand, backlog strength ($2.3B contracted future revenue) and diversified customer base provide visibility; watch conversion pace and takedown cadence .
  • Margin profile appears structurally stable (21–23% gross) ex one-offs; focus shifts to operating leverage in 2H as SG&A rate moderates with higher volumes .
  • Capital structure actions extend duration and bolster liquidity, positioning Forestar to consolidate share amid tighter project-level financing for peers; monitor incremental lot supply and acquisitions .
  • Regional mix matters: Florida slow, Texas less so; strength in Carolinas/Las Vegas; investors should track geographic delivery mix vs ASP/margin variability .
  • Strategic goal within D.R. Horton footprint remains intact (22% of Horton finished lot purchases this quarter); incremental penetration and continued builder diversification are positive medium-term drivers .
  • Near-term trading: Guidance reset and margin commentary reduce downside tail risk; upside catalysts include faster demand recovery, improved cycle times, and second-half revenue leverage materializing .