Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Forestar Group Inc (FOR, Financial) delivered over 5,300 lots in the fourth quarter and more than 15,000 lots for the full fiscal year, showcasing strong operational performance.
- Fiscal 2024 diluted earnings per share increased by 20% to $4, and pretax income rose by 22% to $270.1 million, indicating robust financial growth.
- The company's return on equity improved by 60 basis points to 13.8%, and book value per share increased by 15% from the previous year to $31.47.
- Forestar Group Inc (FOR) has invested approximately $6.7 billion in land acquisition and development over the last five years, delivering over 70,000 finished lots.
- The company ended the quarter with significant liquidity of approximately $860 million, including $480 million in unrestricted cash, providing a strong financial position for future opportunities.
Negative Points
- SG&A expenses increased by 21% from the prior year quarter to $32 million, with SG&A as a percentage of revenues rising to 5.8% from 4.8%.
- The company faces challenges in the entitlement and permitting processes, resulting in lengthening development timelines.
- Despite improvements, governmental delays continue to extend cycle times above historical norms, impacting project timelines.
- Forestar Group Inc (FOR) has not seen any softening in land prices, which could impact future profitability if costs continue to rise.
- The company's reliance on D.R. Horton as a major customer remains high, with 85% to 90% of lots expected to be delivered to them in the near term, limiting diversification.
Q & A Highlights
Q: As you look at your '25 guide, is your expectation that the percentage of lots you deliver to customers other than D.R. Horton will grow in '25?
A: Katie Smith, Vice President - Finance, IR: Not really. We expect to stay at around 85% to 90% of our lots going to Horton over the near term as we aim to increase our market share within D.R. Horton. Until we get closer to delivering about 30% of their lot needs, this percentage will likely remain the same.
Q: Can you provide some numbers around cycle times for land development? How long is it taking now compared to four or five years ago?
A: Mark Walker, Chief Operating Officer: Typically, grading takes about 120 days, though this can vary by project and market. Historically, cycle times were about 12 months, but they have increased due to government approval delays. Recently, we've reduced cycle times by 60 days over the past quarter and 90 days from the peak.
Q: Regarding your development pipeline for 2025, are there any markets you see as oversupplied or where you might pull back on new land acquisition?
A: Mark Walker, Chief Operating Officer: We are not seeing any buildup in inventory at affordable price points, and customer demand remains robust nationwide. We are not calling out any specific caution in any parts of the country.
Q: What is the general constraint to growth, given the increase in lots under contract with D.R. Horton?
A: Anthony Oxley, CEO: The main constraint is the time it takes to put a lot on the ground, from identifying the track, getting it under contract, entitling it, and finally developing it. Our investment was less a couple of years ago, impacting available lots, but we are reversing that trend.
Q: Are you seeing any softening in land prices in markets that have been noted as weaker, such as Colorado, Texas, and Florida?
A: Mark Walker, Chief Operating Officer: No, land prices continue to grow at low to mid-single digits year-over-year, consistent across the United States, including in those specific markets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
