Forestar Group, Inc. :FOR-US: Earnings Analysis: Q2, 2017 By the Numbers : September 12, 2017

Forestar Group, Inc. reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Forestar Group, Inc. – St. Joe Company, A V Homes Inc, Stratus Properties Inc., Howard Hughes Corporation, Tejon Ranch Co. and Forest City Realty Trust Inc Class A (JOE-US, AVHI-US, STRS-US, HHC-US, TRC-US and FCE.A-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 28.02 million, Net Earnings of USD -3.81 million.
  • Gross margins widened from -52.29% to 36.02% compared to the same period last year, operating (EBITDA) margins now -83.28% from -88.68%.
  • Year-on-year change in operating cash flow of -219.23% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from -93.85% to -88.19%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 28.02 22.31 64.5 47.21 47.99
Revenue Growth (%YOY) -41.63 -46.75 -43.43 9.36 -16.43
Earnings (mil) -3.81 24.79 35.72 13.68 9.49
Earnings Growth (%YOY) -140.13 666.43 679.37 108.33 127.5
Net Margin (%) -13.59 111.13 55.39 28.97 19.77
EPS -0.06 0.59 1.02 0.16 0.27
Return on Equity (%) -0.65 4.31 6.62 2.67 1.88
Return on Assets (%) -1.99 13.25 20.05 7.96 4.66

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Market Share Versus Profits

Revenues History
Earnings History

FOR-US‘s change in revenue this period compared to the same period last year of -41.63% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that FOR-US is holding onto its market share. Also, for comparison purposes, revenues changed by 25.60% and earnings by -115.36% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from -52.29% to 36.02%, while operating margins improved from -88.68% to -83.28% over this period. For comparison, gross margins were 38.35% and EBITDA margins -3.72% in the immediate last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

FOR-US‘s change in operating cash flow of -219.23% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from -93.85% to -88.19%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 56.74% to 29.16%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Forestar Group, Inc.

Company Profile

Forestar Group, Inc. is a residential and mixed-use real estate development company. It operates through the following segments: Real Estate, Mineral resources and Other Natural Resources. The Real Estate segment deals with the project planning and management activities related to the acquisition, entitlement, development, and sale of real estate. The Mineral resources segment focuses on exploration, development and production activities by increasing acreage leased, lease rates, and royalty interests. The Other Natural Resources segment includes the sale of wood fiber from portions of the company’s land and lease land for recreational uses. The company was founded in December 2007 and is headquartered in Austin, TX.

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