Forestar Reports Fiscal 2024 First Quarter Results
- 84% increase in net income to $38.2 million
- 41% increase in consolidated revenues to $305.9 million
- 84% surge in pre-tax income to $51.2 million
- Pre-tax profit margin improved by 380 basis points to 16.7%
- 39% increase in residential lots sold to 3,150
- Outlook for fiscal 2024 includes delivering between 14,500 and 15,500 lots, generating $1.4 billion to $1.5 billion in revenue
- Strong balance sheet and liquidity position
- None.
Insights
The reported 84% increase in net income and similar surge in pre-tax income for Forestar Group Inc. reflects a significant improvement in the company's profitability. Such a substantial rise is indicative of effective cost management and operational efficiency, especially considering the year-over-year comparison. The increase in pre-tax profit margin by 380 basis points to 16.7% is a strong indicator of the company's growing ability to translate sales into profits, which is a critical metric for investors assessing the company's financial health.
Moreover, the 41% increase in consolidated revenues coupled with a 39% increase in residential lots sold suggests that Forestar is successfully expanding its market presence, likely driven by strategic land acquisitions and the ongoing demand for residential development. The improved net debt to total capital ratio at 14.9% indicates a solid balance sheet, which provides the company with the leverage to pursue further growth opportunities without overextending its financial commitments.
The residential lot development market is currently experiencing a shortage of affordable developed lots, which is particularly acute in certain regions of the United States. Forestar's position with a substantial lot inventory of 82,400, of which a significant portion is under contract or subject to a right of first offer, positions the company favorably in a supply-constrained market. The strategic relationship with D.R. Horton, evident from the lots sold and right of first offer arrangements, provides a stable demand channel which is beneficial for predictable revenue streams.
Given the current market dynamics, Forestar's expectation to deliver between 14,500 and 15,500 lots generating up to $1.5 billion in revenue is ambitious yet plausible. This target aligns with the ongoing housing demand trends and if met, would underscore the company's ability to scale operations and meet market demand effectively.
The real estate development sector, particularly in the context of residential lots, operates on the ability to maintain a robust inventory and turn it over efficiently. Forestar's lot banking strategy, where it sells lots to a lot banker with the expectation of those lots being sold to D.R. Horton at a future date, is a nuanced approach to managing inventory and cash flow. This strategy likely contributes to the company's strong return on equity of 14.1% for the trailing twelve months, which is a critical measure of how effectively management is using the company's assets to create profit.
It is also important to note the capital structure and liquidity of Forestar, as the company ended the quarter with a significant amount of unrestricted cash and available borrowing capacity. This liquidity, along with no senior note maturities until fiscal 2026, provides the company with the financial flexibility to invest in land opportunities and navigate market fluctuations, which is essential in the cyclical real estate market.
Fiscal 2024 First Quarter Highlights
All comparisons are year-over-year
-
Net income increased
84% to$38.2 million $0.76 -
Pre-tax income increased
84% to$51.2 million -
Pre-tax profit margin improved 380 basis points to
16.7% -
Consolidated revenues increased
41% to$305.9 million -
Residential lots sold increased
39% to 3,150 lots - Owned and controlled 82,400 lots
-
Return on equity of
14.1% for the trailing twelve months ended December 31, 2023 -
Book value per share increased
15% to$28.21 -
Net debt to total capital ratio improved to
14.9%
Financial Results
Net income for the first quarter of fiscal 2024 increased
The Company’s return on equity was
Operational Results
Lots sold during the first quarter increased
The Company’s lot position at December 31, 2023 was 82,400 lots, of which 55,400 were owned and 27,000 were controlled through land and lot purchase contracts. Lots owned at December 31, 2023 included 7,300 that were fully developed. Of the Company’s owned lot position at December 31, 2023, 16,700 lots, or
Capital Structure, Leverage and Liquidity
Forestar ended the quarter with
Outlook
Donald J. Tomnitz, Chairman of the Board, said, “The Forestar team delivered solid results in the first quarter of fiscal 2024, including an
“The supply of vacant developed lots, particularly at affordable price points, continues to be constrained across most of the country, and Forestar is uniquely positioned to take advantage of the shortage of finished lots in the homebuilding industry. In fiscal 2024, we still expect to deliver between 14,500 and 15,500 lots, generating
“We remain focused on growing our platform, turning our inventory, maximizing returns and consolidating market share in the highly fragmented lot development industry. Our strong balance sheet and ample liquidity give us the flexibility to invest in land opportunities that will drive our future growth. We will maintain our disciplined approach when investing capital to enhance the long-term value of Forestar.”
Conference Call and Webcast Details
The Company will host a conference call today (Tuesday, January 23) at 5:00 p.m. Eastern Time. The dial-in number is 888-506-0062, the entry code is 156201 and the call will also be webcast from the Company’s website at investor.forestar.com.
About Forestar Group Inc.
Forestar Group Inc. is a residential lot development company with operations in 57 markets and 23 states. Based in
Forward-Looking Statements
Portions of this document may constitute “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 this release was issued. Forestar does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements in this release include the supply of vacant developed lots, particularly at affordable price points, continues to be constrained across most of the country; Forestar is uniquely positioned to take advantage of the shortage of finished lots in the homebuilding industry; and in fiscal 2024, we still expect to deliver between 14,500 and 15,500 lots, generating
Factors that may cause the actual results to be materially different from the future results expressed by the forward-looking statements include, but are not limited to: the effect of D.R. Horton’s controlling level of ownership on us and the holders of our securities; our ability to realize the potential benefits of the strategic relationship with D.R. Horton; the effect of our strategic relationship with D.R. Horton on our ability to maintain relationships with our customers; the cyclical nature of the homebuilding and lot development industries and changes in economic, real estate and other conditions; the impact of significant inflation, higher interest rates or deflation; supply shortages and other risks of acquiring land, construction materials and skilled labor; the effects of public health issues such as a major epidemic or pandemic, on the economy and our business; the impacts of weather conditions and natural disasters; health and safety incidents relating to our operations; our ability to obtain or the availability of surety bonds to secure our performance related to construction and development activities and the pricing of bonds; the strength of our information technology systems and the risk of cybersecurity breaches and our ability to satisfy privacy and data protection laws and regulations; the impact of governmental policies, laws or regulations and actions or restrictions of regulatory agencies; our ability to achieve our strategic initiatives; continuing liabilities related to assets that have been sold; the cost and availability of property suitable for residential lot development; general economic, market or business conditions where our real estate activities are concentrated; our dependence on relationships with national, regional and local homebuilders; competitive conditions in our industry; obtaining reimbursements and other payments from governmental districts and other agencies and timing of such payments; our ability to succeed in new markets; the conditions of the capital markets and our ability to raise capital to fund expected growth; our ability to manage and service our debt and comply with our debt covenants, restrictions and limitations; the volatility of the market price and trading volume of our common stock; and our ability to hire and retain key personnel. Additional information about issues 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 or will be filed with the Securities and Exchange Commission.
FORESTAR GROUP INC. Consolidated Balance Sheets (Unaudited) |
|||||
|
December 31, 2023 |
|
September 30, 2023 |
||
|
(In millions, except share data) |
||||
ASSETS |
|
|
|
||
Cash and cash equivalents |
$ |
458.9 |
|
$ |
616.0 |
Real estate |
|
2,009.8 |
|
|
1,790.3 |
Investment in unconsolidated ventures |
|
0.5 |
|
|
0.5 |
Property and equipment, net |
|
5.8 |
|
|
5.9 |
Other assets |
|
58.8 |
|
|
58.0 |
Total assets |
$ |
2,533.8 |
|
$ |
2,470.7 |
LIABILITIES |
|
|
|
||
Accounts payable |
$ |
65.3 |
|
$ |
68.4 |
Accrued development costs |
|
99.9 |
|
|
104.1 |
Earnest money on sales contracts |
|
140.9 |
|
|
121.4 |
Deferred tax liability, net |
|
50.2 |
|
|
50.7 |
Accrued expenses and other liabilities |
|
63.4 |
|
|
61.2 |
Debt |
|
705.3 |
|
|
695.0 |
Total liabilities |
|
1,125.0 |
|
|
1,100.8 |
EQUITY |
|
|
|
||
Common stock, par value |
|
||||
49,909,713 and 49,903,713 shares issued and outstanding at December 31, |
|||||
2023 and September 30, 2023, respectively |
|
49.9 |
|
49.9 |
|
Additional paid-in capital |
|
644.9 |
|
|
644.2 |
Retained earnings |
|
713.0 |
|
|
674.8 |
Stockholders' equity |
|
1,407.8 |
|
|
1,368.9 |
Noncontrolling interests |
|
1.0 |
|
|
1.0 |
Total equity |
|
1,408.8 |
|
|
1,369.9 |
Total liabilities and equity |
$ |
2,533.8 |
|
$ |
2,470.7 |
FORESTAR GROUP INC. Consolidated Statements of Operations (Unaudited) |
|||||||
|
Three Months Ended December 31, |
||||||
|
2023 |
|
2022 |
||||
|
(In millions, except per share amounts) |
||||||
Revenues |
$ |
305.9 |
|
|
$ |
216.7 |
|
Cost of sales |
|
233.0 |
|
|
|
169.2 |
|
Selling, general and administrative expense |
|
28.0 |
|
|
|
22.9 |
|
Gain on sale of assets |
|
— |
|
|
|
(1.6 |
) |
Interest and other income |
|
(6.3 |
) |
|
|
(1.7 |
) |
Income before income taxes |
|
51.2 |
|
|
|
27.9 |
|
Income tax expense |
|
13.0 |
|
|
|
7.1 |
|
Net income |
$ |
38.2 |
|
|
$ |
20.8 |
|
|
|
|
|
||||
Basic net income per common share |
$ |
0.76 |
|
|
$ |
0.42 |
|
Weighted average number of common shares |
|
50.1 |
|
|
|
49.9 |
|
|
|
|
|
||||
Diluted net income per common share |
$ |
0.76 |
|
|
$ |
0.42 |
|
Adjusted weighted average number of common shares |
|
50.5 |
|
|
|
49.9 |
|
FORESTAR GROUP INC. Revenues, Residential Lots Sold and Lot Position |
|||||
|
REVENUES |
||||
|
Three Months Ended December 31, |
||||
|
2023 |
|
2022 |
||
|
(In millions) |
||||
Residential lot sales: |
|
|
|
||
Development projects |
$ |
303.5 |
|
$ |
204.0 |
Decrease in contract liabilities |
|
0.7 |
|
|
2.7 |
|
|
304.2 |
|
|
206.7 |
Deferred development projects |
|
1.3 |
|
|
6.7 |
|
|
305.5 |
|
|
213.4 |
Tract sales and other |
|
0.4 |
|
|
3.3 |
Total revenues |
$ |
305.9 |
|
$ |
216.7 |
|
|
|
|
||
|
|
|
|
||
|
RESIDENTIAL LOTS SOLD |
||||
|
Three Months Ended December 31, |
||||
|
2023 |
|
2022 |
||
Development projects |
|
3,150 |
|
|
2,263 |
|
|
|
|
||
Average sales price per lot (1) |
$ |
96,400 |
|
$ |
90,100 |
|
|
|
|
||
|
|
|
|
||
|
LOT POSITION |
||||
|
December 31, 2023 |
|
September 30, 2023 |
||
Lots owned |
|
55,400 |
|
|
52,400 |
Lots controlled under land and lot purchase contracts |
|
27,000 |
|
|
26,800 |
Total lots owned and controlled |
|
82,400 |
|
|
79,200 |
|
|
|
|
||
Owned lots under contract to sell to D.R. Horton |
|
16,200 |
|
|
14,400 |
Owned lots under contract to customers other than D.R. Horton |
|
500 |
|
|
600 |
Total owned lots under contract |
|
16,700 |
|
|
15,000 |
|
|
|
|
||
Owned lots subject to right of first offer with D.R. Horton based on executed |
|
||||
purchase and sale agreements |
|
17,500 |
|
17,000 |
|
Owned lots fully developed |
|
7,300 |
|
|
6,400 |
_____________ |
|
(1) |
Excludes lots sold from deferred development projects and any impact from change in contract liabilities. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20240123587338/en/
Katie Smith, 817-769-1860
Director of Finance & Investor Relations
InvestorRelations@forestar.com
Source: Forestar Group Inc.
FAQ
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