Forestar Lot Sales Stabilize as Land Pipeline Keeps Shrinking
Forestar Group posted 9% net income growth to $35.9 million in the fiscal third quarter as lot sales edged up 1% after two straight quarterly declines, even as its owned-and-controlled land position kept contracting.
Forestar Group (FOR) reported fiscal third-quarter net income attributable to the company of $35.9 million, or $0.70 a diluted share, up 9% from $32.9 million, or $0.65 a share, a year earlier. The residential lot developer's pre-tax income rose 12% to $48.7 million, a 12.0% pre-tax margin, up from $43.6 million in the prior-year quarter.
The results mark a reacceleration from the fiscal first quarter, when net income fell 7% year over year, and a pickup from the second quarter's 2% growth. Pre-tax income has followed the same arc, moving from a 5% decline in the first quarter to 8% growth in the second to 12% in the third. Revenue told a different story: growth decelerated to 4% year over year, to $407.0 million from $390.5 million, down from 7% growth in the second quarter and 9% in the first, a steady slowing across the fiscal year even as profitability improved.
Lot sales volume, which had fallen 17% and 14% year over year in the first two quarters, nearly stalled at a 1% increase in the third quarter, with 3,659 lots sold versus 3,605 a year earlier. For the nine months ended June 30, price has done more of the work than volume: the average sales price per lot rose about 8% to $113,000 from $104,500, while lots sold over the same period fell 9% to 8,541 from 9,349.
Forestar's land pipeline has contracted for three straight quarter-end snapshots, with total owned-and-controlled lots falling to 91,700 as of June 30 from 94,400 in March and 101,000 in December, down from 99,800 at the September fiscal year-end. Lots controlled through purchase contracts shrank faster in proportional terms than owned lots, dropping to 29,500 from 30,900 in March and 35,400 in December, while owned lots fell to 62,200 from 63,500 and 65,600 over the same stretch, suggesting the company let option contracts run off faster than it sold down owned inventory.
Sales to customers other than D.R. Horton fell 45% year over year in the third quarter, to 289 lots from 530, continuing a 46% decline in the second quarter. At the same time, lots subject to Forestar's right of first offer with D.R. Horton climbed to 19,200 from 18,100 in both December and March and 17,600 in September, pointing to a deepening reliance on the homebuilder relationship as open-market sales volume narrows.
Forestar maintained its fiscal 2026 guidance of 14,000 to 14,500 lots and $1.6 billion to $1.7 billion in revenue, a range narrowed at the top end from the wider 14,000 to 15,000 lots reiterated in the first-quarter release.
The balance sheet strengthened alongside the earnings trajectory. Total liquidity rose to $1.1 billion as of June 30 from $1.0 billion in March and $819.3 million in December, reversing from $968.1 million at the September fiscal year-end, with unrestricted cash climbing to $394.9 million from $362.2 million and $211.7 million over the same period. Net debt to total capital fell to 17.7%, its lowest level in the past five quarters, extending a deleveraging trend from 28.9% a year earlier.
Book value per share rose 10% year over year to $36.40, matching the prior two quarters but trailing the 11% growth reported in the fourth quarter of fiscal 2025, while return on equity on a trailing 12-month basis held at 9.6%, down from 10.1% a year earlier.