Forestar Group’s fourth quarter results were met with a significant negative market reaction, reflecting concerns about underlying performance despite a top-line revenue beat. Management attributed the quarter’s revenue growth to a greater mix of higher-priced lot deliveries and expansion in western markets. However, lower sales volumes and a decline in operating margin signaled ongoing challenges. CFO Jim Allen highlighted that the quarter’s margins were impacted by project mix and a specific low-margin track sale, with normalized gross margins remaining under pressure from slower demand and affordability constraints.
Is now the time to buy FOR? Find out in our full research report (it’s free for active Edge members).
Forestar Group (FOR) Q4 CY2025 Highlights:
- Revenue: $273 million vs analyst estimates of $267.5 million (9% year-on-year growth, 2.1% beat)
- Adjusted EPS: $0.30 vs analyst estimates of $0.30 (in line)
- Adjusted EBITDA: $19.4 million vs analyst estimates of $14 million (7.1% margin, 38.6% beat)
- Operating Margin: 6.8%, down from 8.1% in the same quarter last year
- Sales Volumes fell 16.7% year on year (-25.9% in the same quarter last year)
- Market Capitalization: $1.25 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Forestar Group’s Q4 Earnings Call
- Asher Sohnen (Citigroup) asked about drivers behind gross margin declines, particularly excluding the impact of the low-margin track sale. CFO Jim Allen responded that project mix was the primary factor, with margins expected to remain at the lower end of the historical range if demand stays soft.
- Asher Sohnen (Citigroup) inquired about any pricing pushback from customers such as D.R. Horton. Allen explained that pricing has largely stabilized, with customers moving away from large bulk purchases to more structured quarterly takedowns, which has normalized the market environment.
- Asher Sohnen (Citigroup) questioned the outlook for SG&A expenses. Allen indicated that headcount is down slightly and expected to stay stable, implying SG&A will remain flat barring significant operational changes.
- Paul Pescielski (Wolfe Research) asked if higher average sales prices were planned or market-driven, and about the split between entry-level and move-up lots. CEO Andy Oxley clarified that the higher ASP was planned due to western market expansion but reaffirmed a sustained focus on entry-level product.
- Paul Pescielski (Wolfe Research) questioned the approach to Texas and Florida given higher inventory levels. Oxley said development is being selectively moderated in these areas, but long-term fundamentals remain attractive, and capital allocation will continue to adapt to local conditions.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will watch closely for (1) signs of stabilization in sales volumes and gross margins as Forestar Group adapts lot delivery pace to market conditions, (2) evidence of successful capital reallocation between challenged and resilient regions, and (3) sustained SG&A discipline alongside operational efficiency improvements. The evolution of demand in key states like Texas and Florida, as well as the company’s ability to capitalize on its liquidity advantage, will also be important to monitor.
Forestar Group currently trades at $24.50, down from $27.40 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).
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