Genesee & Wyoming could expand Jacksonville operations after RailAmerica deal
It looks like Jacksonville will be losing a corporate headquarters when Genesee & Wyoming Inc. completes its acquisition of RailAmerica Inc., but Genesee & Wyoming does have a sizable operation in Jacksonville that could grow because of the deal.
Genesee actually operates two short-line railroads in Northeast Florida. While RailAmerica has its headquarters office in Jacksonville, none of its 45 rail lines run through the region.
Greenwich, Conn.-based Genesee announced its $1.4 billion agreement to buy Jacksonville-based RailAmerica last Monday. The companies did not say anything about what will happen to the headquarters operations of the two companies but Genesee did say it expects $36 million in cost savings from the merger.
During Genesee’s conference call to discuss the deal, CEO Jack Hellmann was asked for specifics on the cost savings.
“I’m not going to give gruesome details. But suffice it to say that it’s principally corporate and we’ve assumed very, very little in operations,” he said.
In other words, the company won’t be cutting jobs on its rail lines, which need workers to run the trains, but cuts are likely to come from the headquarters’ staffs. Hellmann did say that both companies have similar corporate structures with a lot of duplication.
RailAmerica said it employs more than 150 people in Jacksonville.
Genesee employs 100 in the area. Company spokesman Michael Williams said by email that Genesee has an operations headquarters in Jacksonville “which includes our corporate marketing department, national customer service, corporate compliance and safety, dispatching, mechanical, bridges and structures, and our operations training center, as well as the headquarters of two of our eight North American operating regions, which will be expanding if the acquisition is approved.”
Also, two of the company’s 66 railroads operate in Northeast Florida. That includes the 2-mile-long Talleyrand Terminal Railroad, which connects Jacksonville’s port to major rail lines run by CSX Corp. and Norfolk Southern Corp.
Genesee also operates the 32-mile First Coast Railroad, which runs from Fernandina Beach and Yulee into Southeast Georgia.
It could take a while for Genesee to take over operation of RailAmerica’s short-line railroads because of the regulatory approval process.
Genesee said it hopes to “close the transaction into a voting trust” as early as the current quarter while waiting for approval from the U.S. Surface Transportation Board to take over operation of the railroads. That could come anywhere from the fourth quarter this year to the third quarter next year, it said.
“The STB will look primarily at anti-competitive risks. The Genesee and RailAmerica networks only have four touch points, which suggests a limited ability of the combined entity to bring anticompetitive dynamics to a particular market. Nonetheless, this will be a STB determination,” Wells Fargo analyst Anthony Gallo said in a research report.
If the deal is approved by the fourth quarter, Genesee said it could increase its earnings per share by more than 10 percent next year.
Analysts see the deal as favorable for the company, and its stock rose from the mid-$50s the previous week to above $60 last week after the deal was announced.
“We like this transaction for a number of reasons and reiterate our ‘outperform’ rating on Genesee shares,” said Gallo, who values the stock at $66 to $69.
PSS results still ‘cluttered’
PSS World Medical Inc. announced a major restructuring of its business in May, and analysts are still finding it difficult to grasp the state of the company.
“PSS brought way too many moving pieces to the reporting season party and we think the story is more cluttered now,” Robert W. Baird analyst Eric Coldwell said in a research note after the Jacksonville-based company reported quarterly earnings.
“PSS World Medical’s first-quarter report caused us some consternation, given the lack of visibility around what we would be seeing in revenues or overall results,” Barclays Capital analyst Lawrence Marsh said in a note.
PSS last week reported earnings from continuing operations of 18 cents a share for the first quarter that ended June 29, unchanged from last year and 3 cents lower than the average forecast of analysts surveyed by Thomson Financial.
The medical supply distribution company in May announced its “Healthcare 2.0” initiative to realign its businesses into four main areas to prepare for a changing U.S. health care system. In a news release, CEO Gary Corless said the realignment is progressing well.
“During the quarter, we made progress in integrating acquisitions and building the leadership teams in our four focused business verticals — Physician, Laboratory, Dispensing and Home Care & Hospice — while driving robust top-line revenue growth across all four verticals,” Corless said.
“Our team members have embraced this transformation and are demonstrating tremendous commitment to serving caregivers and winning in the marketplace,” he said.
However, investors were uncertain about the progress. PSS’ stock fell $1.29 to $20.32 Thursday after the first-quarter report.
“The Street will struggle to understand the ‘real’ numbers while models evolve,” said Coldwell, who maintains a “neutral” rating on the stock.
William Blair & Co. analyst John Kreger said in a research report that he views the company’s business trends “as rather choppy at present, given macro pressures, the changing structure, and acquisitions.”
“We maintain our ‘market perform’ rating on the stock, as we look for further clarity on the earnings power and growth potential of the company’s new structure,” he said.
Marsh reduced his earnings estimates after the first-quarter report but maintained an “overweight” rating with a $24 price target on the stock.
“We’ll continue to monitor trends of progress in PSS’ ambitious acquisition and re-positioning goals,” he said.
Fidelity National Financial earnings higher
Fidelity National Financial Inc. last week reported second-quarter earnings of 65 cents a share, well above the 36 cents a share earned in the second quarter of 2011 and also beating the average analysts’ forecast of 48 cents, according to Thomson.
However, some special items affected the results. During the quarter, Fidelity consolidated the results of its majority-owned restaurant subsidiary into the earnings for the whole company. The gain from that transaction, after offsetting special charges from some other operations, increased earnings by 13 cents a share in the quarter.
Fidelity’s main business, title insurance, did well. Pre-tax earnings in that segment rose 43 percent to $202.3 million.
“Overall, we viewed second-quarter results as positive and believe that refinancing activity could be a multiquarter tailwind,” Barclays Capital analyst Mark DeVries said in a research note.
The restaurant business was only included for part of the second quarter but still contributed $252.9 million in operating revenue to Fidelity’s total revenue of $1.74 billion.
CEO George Scanlon said in a news release that the company is “excited to begin to consolidate our restaurant operations and report them as a distinct segment.”
“We are confident that the increased transparency of the separate segment disclosure of a consolidated restaurant group will allow investors to more easily derive the fair value of our restaurant operations,” he said.
Fidelity owns 55 percent of the restaurant company called American Blue Ribbon Holdings LLC, which owns the O’Charley’s, Ninety Nine Restaurant, Max & Erma’s, Village Inn, Bakers Square and Stoney River Legendary Steaks chains.
The restaurant company also in June agreed to buy J. Alexander’s Corp., but allowed J. Alexander’s to seek alternative bids for one month.
J. Alexander’s announced last week that it received two other offers in the “go-shop” period and it may continue negotiating with those parties while it waits to complete the deal with American Blue Ribbon.
EverBank’s earnings higher after IPO
EverBank Financial Corp. last week reported adjusted second-quarter earnings of 33 cents a share in its first quarter as a public company, up from 26 cents last year and 9 cents higher than the average Thomson forecast.
Still, Keefe, Bruyette & Woods analyst Jefferson Harralson was looking for more from EverBank following its initial public offering in May.
“We did not get the huge quarter we were expecting from an EPS standpoint, but EverBank did prove its mettle in the growth department,” Harralson said in his research report.
EverBank’s total assets reached $15 billion as of June 30, up 9 percent from the end of the first quarter and up 20 percent over the past year.
EverBank also said it will pay its first quarterly dividend of 2 cents a share next month. The company had already said in its IPO prospectus that it would begin paying that dividend in the third quarter.
Rayonier reports strong quarter and dividend increase
Before reporting better-than-expected second-quarter earnings on Thursday, Rayonier Inc. earlier in the week announced a dividend increase.
“Monday’s announcement of a 10 percent increase in the quarterly dividend, from 40 cents per share to 44 cents per share effective with the third quarter distribution, underscores our continuing confidence for 2012 and beyond,” CEO Paul Boynton said in Rayonier’s earnings news release.
The Jacksonville-based forest products company had second-quarter net income of 54 cents a share, up from 45 cents last year and 6 cents higher than the average Thomson forecast.
D.A. Davidson analyst Steven Chercover said a tax credit added 5 cents a share to Rayonier’s earnings, but he also said in a research note that the company’s specialty cellulose business continued to produce “stellar” results.
“Specialty cellulose is key to Rayonier, as it has enabled the company to not only grow its land base, but to raise its dividend three times and 30 percent over the past three years (and eight times in the past decade),” Chercover said.
“We suspect that specialty cellulose will remain the engine of growth for the foreseeable future, and our confidence in its prospects drives our view on the stock,” he said.
Chercover has a “buy” rating and a $55 price target on the stock, which was trading at about $47 for most of last week.
Landstar ‘less negative’ on economy
Landstar System Inc. last week reported second-quarter earnings of 76 cents a share, up from 62 cents the previous year. The Jacksonville-based trucking company’s earnings were at the high end of its forecast range of 71 cents to 76 cents.
Dahlman Rose & Co. analyst Jason Seidl said in a research note that Landstar executives are “less negative than most on the economy.”
“Based on its unique insight into many segments of the market and several freight transportation modes, the company continues to believe the economy will move along in an upward direction, but at a very slow gradual pace. The company appeared to suggest that the increased negativity may not be fully warranted based on what it is seeing in the marketplace,” Seidl said.
Landstar is forecasting third-quarter earnings to be between 71 cents and 75 cents a share, which would beat last year’s third-quarter earnings of 64 cents.