Forestar Group Inc. (FOR)

Forestar Group Inc. Quarterly Financial Analysis

Report Date: 2025-04-30
Period Covered: Q1 2025 (Quarter ended March 31, 2025)

Profit & Loss Overview

• Total Revenue: $3,510 million (Q1 2025) vs $3,338 million (Q1 2024) (+5.2%)
• Cost of Sales: $2,718 million vs $2,507 million (+8.4%)
• Gross Profit: $792 million vs $831 million (–4.7%)
• SG&A Expense: $384 million vs $292 million (+31.5%)
• Net Income: $450 million vs $316 million (+42.4%)
• EPS (Basic): $0.90 vs $0.62; EPS (Diluted): $0.89 vs $0.62

Analysis of Drivers

• Revenue growth driven by the sale of 3,411 lots in Q1 2025 vs 3,289 in Q1 2024, aided by lower mortgage rates and builder incentives.
• Gross margin compression due to higher development costs and inventory mix shifts (larger share of lower-margin projects).
• SG&A increased on headcount growth to support national expansion and technology investments.
• A one-time $11 million loss on debt extinguishment partially offset interest savings from refinancing.

Balance Sheet & Cash Flow

• Total Assets: $30,427 million (March 2025) vs $28,401 million (Sept 2024)
• Total Debt: $8,725 million (up from $7,064 million) due to new $500 million 2033 senior notes and draws on revolver.
• Net Unrestricted Cash: $1,743 million vs $4,812 million; available revolver capacity of $6,177 million.
• Operating Cash Flow: $(4,698) million in H1 FY25 (vs $(2,159) million), driven by land build-out and inventory growth.

Pros

• Strong national footprint with 105,900 owned/controlled lots as of March 2025.
• Low leverage profile: Debt/Capital = 34.7%; Net Debt/Capital = 29.8%.
• Ample liquidity: >$7.9 billion total available.

Cons

• Working-capital heavy model ties up cash in land development.
• Gross margin under pressure from rising land and construction input costs.
• Interest rate exposure on variable-rate revolver and potential covenant risks with higher debt.

Outlook: Forestar remains focused on disciplined lot development in core markets, targeting affordable price points to drive long-term ROIC. Continued geographic diversification and strong builder relationships underpin growth, but management must navigate cost inflation and working-capital demands to sustain margins.

Q1 2025 revenue by product line:

• Residential lot sales: $3,469 million (98.8% of total revenue)
• Lot banking and deferred development: $41 million (1.2% of total)

Forestar is on a solid growth trajectory, leveraging a diversified national lot portfolio and robust liquidity to expand market share in the fragmented single-family lot development sector. Key financial health indicators—moderate leverage, strong cash reserves, and consistent lot sales volume—support near-term stability. Challenges include high working-capital requirements, margin compression from cost inflation, and interest-rate risk on its revolver. Long-term opportunities hinge on continued geographic expansion and operational efficiency to maximize returns on newly entitled land.