Forestar Group Inc. (FOR) Q4 2026 earnings review
Forestar's cash rises, but it plans fewer lots next year
Forestar sold a few extra lots, but each one brought in less and cost more to deliver. Revenue fell 13% because last year's quarter had a large land sale, and gross margin dropped to a two-year low. Chairman Donald J. Tomnitz called the year solid, yet plans fewer lots and 11% less revenue next year.
| Revenue, fourth quarter | $580.8M −13% from a year ago |
|---|---|
| Gross margin, fourth quarter | 17.8% 22.3% a year ago |
| Lots sold, fourth quarter | 5,004 +2% from a year ago |
| Fiscal 2027 plan | 12,000–13,000 lots 13,545 this year: −8% at the middle of the range |
⚖️ Verdict: 🔴 Bearish
The story got worse because lot prices stopped rising and margins fell while the land bank shrank 15%. Forestar missed its lot target for a second year and plans fewer lots again. The good news: cash rose to $657 million and net debt is now small, so Forestar can wait out a slow market.
The question now is whether the smaller land bank is a choice or a limit. If Forestar is holding back on purpose, it can buy land again when demand returns. If it cannot rebuild the pipeline quickly, fiscal 2028 volumes fall too. Next quarter's count of controlled lots will tell.
🐂 Bull Case
Cash Rose to $657 Million as Spending Slowed
Forestar funds land and development with cash and two bond issues, not with loans on individual projects. Chairman Donald J. Tomnitz said the team responded to the market by "managing the pace of investments and strengthening our balance sheet", and the year-end balance sheet shows it.
- Cash: $657 million, from $395 million in June
- Net debt to capital: 6.7%, from 19.3% a year ago
- Liquidity, cash plus unused credit line: $1.3 billion
The cash came from selling lots out of land Forestar had already paid for while buying less new land, so inventory fell $181 million in the quarter. That gives room to wait out a slow market, but cash is now a fifth of assets with no stated use.
What to watch: the fiscal 2027 investment plan against this year's $1.4 billion. A lower figure would mean cash keeps building while the land bank shrinks.
Overhead Costs Fell 2% for the Year
Selling, general and administrative expense, the cost of staff and offices rather than of building lots, is the one cost Forestar fully controls. For the year it fell 2% to $151.0 million, a little faster than revenue. Overhead therefore stayed near 9.2% of sales.
In the fourth quarter the line dropped 10% to $38.4 million, but revenue fell faster, so overhead took a bigger share of sales than a year ago. Management said last quarter that headcount would rise in fiscal 2027 as it builds development teams in the West, which would add to this cost while the plan has revenue falling.
What to watch: the employee count in the annual report, last given as 402 and down 9% from a year earlier. A rise with revenue falling would end two years of overhead gains.
🐻 Bear Case
Forestar Plans Fewer Lots From Less Land
Forestar buys raw land, builds roads and utilities, and sells finished lots to homebuilders, so its land bank is its future sales. Chairman Donald J. Tomnitz wrote that the company's strengths "position us well to continue supplying homebuilders with finished lots and capturing market share". The land bank ended the year at 84,400 lots, down 15% from a year ago.
Lots under purchase contracts but not yet bought fell 25% to 26,200; these are the lots Forestar would develop two years from now. A smaller queue now means fewer lots later, and the fiscal 2027 plan shows it.
- Fiscal 2026 lots delivered: 13,545, below the 14,000–14,500 target
- Fiscal 2027 plan: 12,000–13,000 lots, down 8% at the middle of the range
- Owned lots: 58,200, down 11% from a year ago
Management said last quarter the smaller land bank is deliberate, because owned supply is still above its target of three to four years of deliveries. But at the new plan's 12,500 lots a year, owned land covers 4.7 years by our math, so the target gets harder to reach because deliveries fall, not because Forestar adds land.
What to watch: controlled lots at December 31. Another decline, with investment under this year's $1.4 billion plan, would mean fiscal 2028 deliveries fall below the fiscal 2027 plan.
Lot Prices Fell and Gross Margin Hit 18%
Gross margin is what remains of revenue after the cost of buying land and building the lots. Management said last quarter it had run at the lower end of a 21% to 23% range for several years, and through nine months higher lot prices had held it there as volumes fell.
In the fourth quarter the price per lot fell for the first time in the eight quarters we track, and the cost of delivering each lot did not come down with it.
- Price per lot: $108,300, down 6%
- Cost of sales: 82.3% of revenue, from 77.7%
- Land write-down inside that cost: $7.6 million, or 1.3 margin points
- Margin without the write-down: 19.1% by our math, still a two-year low
- Full-year gross margin: 19.7%, from 21.9%
This matters because rising prices had held revenue and margin up while lot volumes fell, and that support ended this quarter. The fiscal 2027 plan has revenue falling faster than the lot count, so the plan does not assume prices come back.
What to watch: the first-quarter gross margin in January, without the write-down. A reading under 20% would mean the price drop, not the charge, moved the margin.
D.R. Horton Buys Five of Every Six Lots
D.R. Horton, the largest US homebuilder, owns about 62% of Forestar and took 84% of the lots it sold this quarter. The relationship gives the developer a steady buyer, but one customer's pace of home starts sets its revenue, and a Delaware lawsuit over the pricing of those lot sales got no update in the release.
Sales to other builders did recover for one quarter, at 16% of deliveries after 8% in the three months to June. One quarter does not change the picture, because 92% of the owned lots under contract go to D.R. Horton by our math.
What to watch: lots sold to other builders in the December quarter. A share back near 8% would mean this quarter's rebound was a one-off.
Risks This Quarter Didn't Answer
Five standing concerns got no new numbers in the press release, so each stays where it was; the readings below would move them, and most should appear in the annual report or on the January call.
- Share of D.R. Horton home starts on Forestar lots: management gave it on seven straight calls, last at 14%, against a goal of one in three; the annual report or call will show whether it moved.
- Land and development investment: the fiscal 2026 plan was about $1.4 billion; the cash-flow statement in the annual report will show the actual total.
- Lawsuit over lot pricing to D.R. Horton: no update; the annual report's legal note will say whether the company can estimate a loss.
- Affordability: no takedown-pace figures; the call will show whether builders slowed lot purchases after the rate rise Tomnitz described, and whether Texas and Florida weakened further.
- Land option write-offs: $8.0 million through nine months, double a year earlier; the annual report will show the full-year figure.
👓 Other Themes
Mortgage Rates Rose During the Quarter
Chairman Donald J. Tomnitz said: "New home demand continues to be impacted by ongoing affordability constraints and cautious consumer sentiment, with rising mortgage rates adding further pressure in the fourth quarter." Forestar does not sell homes, but its lots sell at the pace its builder customers start them, so when builders start fewer homes, lot purchases slow a quarter or two later.
💲 Other KPIs
Lots under contract to sell fell 10% from a year ago, yet their dollar value stayed at about $2.2 billion. These contracts are the developer's order book. The dollars are holding because each contracted lot is now worth more by our math: roughly $102,000, against $88,000 a year ago.
Real estate, the land and lots on the balance sheet, fell 4% from a year ago and 7% from June. The balance peaked in December, held through the spring, and fell in the fourth quarter as deliveries ran ahead of new land spending. Each dollar of inventory run-off became cash.
Book value per share rose 8% from a year ago, after 11% the year before, because Forestar keeps all its profit and pays no dividend. Return on equity slipped to 7.8%, since profit fell while equity kept growing. Chairman Donald J. Tomnitz said the figure has risen 83% over five years.
🔮 Guidance
New. The plan has lot deliveries falling about 8% at the middle of the range, after a 5% decline this year. Chairman Donald J. Tomnitz said Forestar will "balance the pace and price of lot sales with the timing of our investments". The record runs one way: the developer missed its unit plan in each of the last two years, by about 4% on average, so if the pattern holds deliveries land near 12,000.
New. The plan has revenue falling about 11% at the middle of the range, from $1.64 billion this year. Revenue falls faster than lots in the plan, so it also assumes a drop in revenue per lot. By our math that is about $116,000 per lot in fiscal 2027, against $121,000 this year. Revenue plans have landed inside or above their range in each of the last two years, while unit plans have not.
❓ Key Questions
How much did Forestar invest in land this year?
The company planned about $1.4 billion for fiscal 2026 and gave no figure in the release; the gap between plan and actual shows whether the smaller land bank was a choice or a shortfall.
What share of D.R. Horton's starts used Forestar lots?
Management gave this figure on every call for seven quarters, most recently 14%, against a stated goal of one home in three. It is not in the release, so progress toward that goal is unreadable this quarter.
Why did the price per lot fall 6%?
A shift toward cheaper markets means something different from price cuts to keep D.R. Horton taking lots. The fiscal 2027 plan's revenue per lot depends on which it was, and the release does not say.
Which projects took the $7.6 million write-down?
The write-down and a $10.0 million gain on a land sale landed in the same quarter. Knowing which projects lost value, and whether more land is for sale, would show if the land bank is shrinking by choice.
What is the $657 million of cash for?
Management said in April that investing for growth was the best use of cash, yet the fiscal 2026 investment plan was below the prior year's spending and the fiscal 2027 lot plan is smaller. Cash is now a fifth of assets, so its intended use matters.