Forestar: Steady Quarter, Deliberate Discipline, but the West Is Calling
Q3 2026 delivers solid results and maintained guidance, while management signals a careful pivot toward efficiency today and expansion into the West in 2027.
FOR · Earnings Call · 2026-07-21
Another Quarter, Same Cadence — Almost
Forestar Group (FOR) reported a characteristically steady fiscal Q3 (June 2026), with revenue up 4% to $407M, EPS up 8% to $0.70, and pretax income up 12% to $48.7M. Management maintained its full-year guidance of 14,000–14,500 lots and $1.6B–$1.7B revenue, pointing to a solid conclusion to fiscal 2026. The quarter also marked a meaningful milestone: the delivery of the 100,000th lot since D.R. Horton’s 2017 investment. As Andy Oxley noted, “We also reached a significant milestone this quarter, delivering our 100 thousandth lot since D.R. Horton made its transformative investment in Forestar in 2017.” — Anthony W. Oxley, Chief Executive Officer · 2026-07-21 That milestone underscores the scale of the platform and the strength of the Horton partnership, which remains the foundation of the business. The demand narrative remains unchanged: cautious consumer sentiment and affordability constraints continue to weigh on the pace of new home sales. Yet the company is managing inventory with discipline and Forestar team is focused on consolidating share in a fragmented industry. The land market, meanwhile, is "relatively stable," with little movement in prices but improvement in negotiation terms. "We have seen a little bit of improvement on being able to negotiate terms… getting land on takedowns, getting through full entitlement and permitting," Oxley said.The Headcount Pivot
The most striking strategic nuance this quarter is a deliberate shift in the company’s approach to hiring. In past weaker markets, Forestar historically used the downturn to add headcount opportunistically. This time, they are intentionally holding headcount flat. "We will see an increase in headcount as we go into 2027. As we develop out more land capabilities, particularly out West," said Oxley. That contrasts with the prior fiscal year, when management had guided to a 24% increase in headcount. The company is now leaning into efficiency: SG&A as a percentage of revenue improved to 9.4% from 9.6%, and headcount was down 9% year-over-year. This discipline is not a retreat but a rebalancing. As Jim Allen explained in a prior call, "We continue to believe that our best use of cash is investing for future growth of the business." The investing philosophy is unchanged, but the timing is now more opportunistic.Cycle times over the past trailing, let's say, 36 months have come down close to 6 months. Settled in around 12 months.
Cycle Times and Cost Stability
On the operational side, cycle times have improved meaningfully. Mark Walker reported, "Cycle times over the past trailing, let's say, 36 months have come down close to 6 months. Settled in around 12 months." That improvement, driven by better contractor availability and a more disciplined approach to phasing, supports both cost and margin stability. The company sees further room to reduce cycle times, though municipal approvals remain the bottleneck. Land costs have stabilized over the past year, with some categories seeing reductions and others increases, but not enough to pressure margins materially. Gross margin came in at 20.7%, at the lower end of the historical 21–23% range, due primarily to mix and slower absorption. Diesel costs have not had a meaningful impact, according to Jim Allen. The land market’s stability, combined with a focus on shovel-ready deals, positions the company to maintain returns. cycle times have been a recurring theme, but the continued progress is a positive signal.The Balance Sheet as a Weapon
Forestar continues to highlight its capital structure as a competitive moat. With approximately $1.1B in liquidity and a low leverage profile, the company is well-positioned to act on distressed land opportunities. Effective net cash improved to -$431M from -$698M a year ago, and liabilities-to-assets declined to 42.6%. Interest coverage strengthened to 6.5x. This flexibility is especially valuable in a market where project-level financing has become scarce and expensive for competitors. As Jim Allen noted, "Our capital structure provides us with operational flexibility while our strong liquidity positions us to take advantage of attractive opportunities as they arise." The company also continues to build its contracted backlog, which stands at $2.3B of future revenue, underpinned by 23.5k lots under contract and $202M in earnest money deposits. That backlog provides visibility into future growth and is a strong indicator of the company’s ability to gain share even in a slower market.I would expect our headcount to continue to remain flat or maybe even drift down slightly as we move into fiscal '26.