Forestar (US:FOR)2022-11-10 03:38Financial Data and Key Metrics Changes - Pre-tax income for Q4 increased 13% to $66.4 million, with consolidated revenues of $381.4 million, reflecting a pre-tax profit margin improvement of 340 basis points to 17.4% compared to the previous year [11][15] - For the full fiscal year, pre-tax income rose 61% to $235.8 million, with consolidated revenues increasing 15% to $1.5 billion, and an 11% increase in lot deliveries to 17,691 lots [11][16] - Gross profit margin improved to 23.4% in Q4 and 21.3% for the year, representing increases of 530 and 400 basis points, respectively [17] Business Line Data and Key Metrics Changes - 35% of lots sold in Q4 were Forestar-sourced, up from 24% in the prior year quarter, indicating a significant increase in self-sourced lots [19] - The average sales price (ASP) for lots sold in Q4 was $88,800, with fluctuations expected based on geographic location and lot size [15] Market Data and Key Metrics Changes - 31% of owned lots are under contract to sell, representing approximately $1.5 billion in future revenue, with $136 million in hard earnest money deposits [24] - The lot position decreased by 6,900 lots or 7% year-over-year, with 55% of owned lots sourced by Forestar, up from 52% a year ago [23] Company Strategy and Development Direction - The company aims to increase the percentage of lots sold to customers other than D.R. Horton to 30% over the intermediate term [20] - Forestar's capital structure is viewed as a competitive advantage, allowing for flexibility in navigating market conditions [29] Management's Comments on Operating Environment and Future Outlook - The management expressed optimism for the future, starting fiscal 2023 from a position of strength with over $620 million in liquidity [13] - The company anticipates a moderation in demand for residential lots as homebuilders adjust to new sales paces, but remains focused on managing development to match market demand [24][31] Other Important Information - Investments in land and land development totaled approximately $1.4 billion in fiscal 2022, with a focus on land development [21] - The company ended the year with a net debt to capital ratio of 26.9%, down from 35.2% the previous year, indicating improved capital management [28] Q&A Session Summary Question: Are peers on the development side beginning to drop deals? - Management noted that they are starting to see some opportunities as other developers face issues with loans, but the deals are not yet extremely attractive [36] Question: Are frontend contractors becoming easier to find? - Management confirmed that frontend contractors are loosening up, particularly in dirt moving, but other areas like utilities are still facing delays [37] Question: How is the growth of the non-D.R. Horton business progressing? - Management indicated progress is being made, with a goal to increase non-D.R. Horton business to 30% over the next two to three years [41] Question: What is the outlook for gross margins in 2023? - Management expects some margin compression due to renegotiations with builders, but it is too early to determine the extent [42][43] Question: What is the risk of impairments in the current market? - Management stated that margins remain strong and they are a long way from widespread impairments, with only isolated incidents noted [46][47] Question: Are there levers to drive greater affordability for home prices? - Management emphasized a focus on affordable segments and controlling inventory flow to maintain capital efficiency [50]