Forestar (US:FOR)2023-07-21 00:07Financial Data and Key Metrics Changes - Net income for Q3 2023 increased by 18% year-over-year to $46.8 million, or $0.93 per diluted share, compared to $39.7 million, or $0.80 per diluted share in the prior year [8][12] - Consolidated revenues rose by 20% to $368.9 million from $308.5 million in the prior year quarter [12] - Pretax income increased by 18% to $62.4 million, with a pretax profit margin of 16.9%, slightly down from 17.1% in the prior year [13] - Gross profit margin was 23%, up 450 basis points sequentially but down 100 basis points from a year ago [13] Business Line Data and Key Metrics Changes - Lot deliveries increased by 10% to 3,812 lots, with an average sales price of $87,700 [12][13] - The company sold lots to 16 customers during the quarter, marking a new quarterly high [15] - 28% of owned lots are under contract to sell, representing approximately $1.4 billion of future revenue [22] Market Data and Key Metrics Changes - The supply of new and existing homes at affordable price points remains limited, despite higher mortgage rates and inflationary pressures [14] - Builder incentives have helped bridge the affordability gap for many homebuyers, leading to increased housing starts [14] - The company is seeing increased demand for finished lots, particularly in markets like Phoenix and Denver [72][74] Company Strategy and Development Direction - The company aims to double its market share to 5% over the intermediate term [32] - Forestar is focused on developing lots for homes at affordable price points, with an emphasis on capital efficiency [15][22] - The company plans to maintain a disciplined approach to capital investment while leveraging its strong balance sheet to capitalize on growth opportunities [25][28] Management's Comments on Operating Environment and Future Outlook - Management noted that while new home starts and sales have been stronger than expected in 2023, mortgage rates at peak levels could impact future demand [30][31] - The company is closely monitoring market conditions and adjusting its strategies to balance pace and price for optimal returns [31] - Management expressed confidence in the company's ability to navigate the current environment and capitalize on opportunities for growth [33] Other Important Information - The company invested approximately $215 million in land and land development during the quarter, with expectations for increased investments in the coming quarters [20] - The company ended the quarter with approximately $780 million of liquidity, including a cash balance of $400 million [23][24] Q&A Session Summary Question: How has core finished lot pricing been trending recently? - Management indicated that pricing has remained consistent, reflecting more in margins than average sales price [43] Question: What are the expectations for gross margin variability in the upcoming quarters? - Management noted that maintaining appropriate pace and meeting builder demand is prioritized over margins, with some price adjustments made as necessary [61] Question: How responsive has builder interest in lots been relative to mortgage rates? - Management observed that builder interest has increased, especially for finished lots, despite rising mortgage rates [74]