Forestar Group Inc. 2026 Q4 Earnings Call

Thank you, Matthew. Good morning, and welcome to the call to discuss Forestar's fourth quarter and fiscal year results. Thank you for joining us. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although Forestar 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 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'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 available on our website at investor.forestar.com, and we plan to file our 10-K in the next few weeks. After this call, we will post an updated investor presentation to our investor relations site under events and presentations for your reference. Now, I will turn the call over to Andy Oxley, our President and CEO.

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. Before discussing our fourth quarter and fiscal year results, I want to recognize Don Tomnitz. As announced in yesterday's press release, Don will retire as Executive Chairman of Forestar effective October 31st. His leadership has played a vital role in shaping the company's strategic direction and driving its significant growth. We are deeply grateful for his dedicated service and many contributions, and we wish him all the best in retirement. Now turning to the results. The Forestar team had a solid finish to the fiscal year, generating over $580 million of revenue in the fourth quarter and $1.6 billion for the full year within our most recent guidance range.

Ongoing affordability constraints and cautious consumer sentiment continued to weigh on new home sales and higher mortgage interest rates added further pressure during the quarter. Despite these challenges, we increased our book value per share by 8% to $37.56 at year-end and further strengthened our balance sheet, ending the year with $1.3 billion of liquidity while continuing to position us to achieve our long-term objectives. Over the last five years, we have invested more than $7 billion in land acquisition and development and delivered approximately 75,000 finished lots to local, regional, and national homebuilders. During the same period, our book value per share increased 83%. These results reflect the strength of our business model and teams that we have built across our national footprint.

For fiscal 2027, we will continue to allocate capital prudently, manage inventories efficiently, and focus on generating solid returns to strengthen our market-leading presence in the highly fragmented lot development industry. With a differentiated combination of financial resilience, deep expertise, and a substantial operating platform, we are well-equipped to supply homebuilders with the finished lots they need while successfully navigating current market dynamics. Jim will now discuss our fourth quarter and fiscal 2026 financial returns in more detail.

Thank you, Andy. In the fourth quarter, net income attributable to Forestar was $59.2 million, or $1.15 per diluted share on revenue of $580.8 million. Fourth quarter revenue includes $38.7 million in tract sales and other revenue. For the year, net income attributable to Forestar was $142.6 million, or $2.78 per diluted share on $1.6 billion of revenue, which includes $129.1 million of tract sales and other revenue. We sold 5,004 lots during the quarter, bringing our total lots sold for the full fiscal year to 13,545. Our average sales price was $108,300 for the quarter and $111,200 for the year. We expect continued quarterly fluctuations in our average sales price based on the geographic location and lot size mix of the lots we sell. Our gross profit margin for the fourth quarter was 17.8%, compared to 22.3% for the same quarter of fiscal 2025.

This quarter's margin was reduced by higher costs to close out one project due to increased regulatory compliance requirements, as well as $7.6 million of real estate impairment charges related to two projects. Excluding these items, our gross profit margin would have been 20.8%. Our gross profit margin for the year was 19.7%. Including those same items, our full-year gross profit margin would have been 20.8%. Our fourth quarter pre-tax income was $78.6 million, and our pre-tax profit margin was 13.5%. Pre-tax income for the year totaled $192.1 million, and our pre-tax profit margin this year was 11.7%. Pre-tax income and profit margin for the quarter and the year were reduced by the items I just mentioned, and partially offset by a $10 million gain on sale of assets in the fourth quarter.

Chris? SG&A expense for the fourth quarter decreased 10% to $38.4 million, representing 6.6% of revenue.

The decline compared to the same quarter in fiscal 2025 was largely driven by lower headcount and variable compensation. For the year, SG&A expense decreased 2% to $151 million, or 9.2% of revenue. We remain focused on managing SG&A efficiently while maintaining strong teams across our national footprint to support future growth. We expect headcount to remain relatively flat in fiscal 2027.

Mark? Ongoing affordability constraints and cautious consumer sentiment continue to weigh on new home demand.

Buydown incentives offered by builders are helping to bridge the affordability gap. However, recent increases in mortgage rates are further constraining affordability. Meanwhile, homebuilders remain focused on shortening cycle times and efficiently managing their inventory of homes and finished lots, which is affecting the timing and volume of finished lot purchases. Our primary focus remains developing lots for new homes at prices for entry-level and first-time buyers, which is the largest segment of the new home market. However, we maintain the flexibility to pursue projects targeting other segments of the new home market as well as those offering multiple product types. Availability of contractors and necessary materials remain solid.

Land development costs have been stable, which have been helped by our team actively working with trade partners on project cost and taking advantage of less land development activity occurring across the industry. We have also seen stable 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.

Jim? D.R. Horton is our largest and most important customer.