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LPS’ costs climb in foreclosure investigations

by Mark Basch, Contributing Writer

Lender Processing Services Inc. announced an agreement Thursday with the Missouri Attorney General to pay $2 million to settle charges related to its role in the nationwide foreclosure mess. But payment was only the tip of the iceberg.

LPS also announced Thursday that it set aside an additional $144.5 million in the second quarter for possible foreclosure-related legal costs.

That’s on top of the $78.5 million it reserved for legal costs in the fourth quarter of 2011.

Jacksonville-based LPS provides technology services for mortgage lenders through all phases of the loan process, from origination through default if the loan goes into foreclosure.

The company has been dealing with investigations by a number of state and federal authorities for more than two years over charges that one of its subsidiaries falsified documents.

When LPS announced the $78.5 million charge in February, analysts were hoping that was a signal the company’s legal costs would be relatively small. The additional $144.5 million charge raises more questions.

“While the Missouri settlement suggests progress is being made and settlements could be small, the massive charge may signal otherwise,” D.A. Davidson analyst John Kraft said in a research note.

In the company’s quarterly conference call with analysts Friday, CEO Hugh Harris said LPS increased its reserves for legal costs now because the company has “greater clarity” over its ultimate costs to settle the foreclosure-related issues.

“We continue to make progress toward resolving these matters,” he said.

Several analysts pressed for more details about how LPS arrived at the $144.5 million figure and whether there could be more money set aside later, but company officials were reluctant to say more.

Harris did say LPS has improved its procedures as it tries to resolve past problems.

“Today, LPS is an improved company with an ongoing commitment to achieve the gold standard for compliance in our industry and in support of our customers,” he said.

With the big legal charge, LPS had a net loss of $37.9 million in the second quarter. It lost $21.2 million in the fourth quarter after the earlier charge.

While these legal costs are high, LPS has the financial resources to handle them, so they shouldn’t affect the state of the company. In fact, its stock rose as much as $3.06 to a 52-week high of $27.81 on Friday morning despite the loss reported Thursday after the market closed. It closed at $25.01 Friday.

Excluding the legal costs, LPS said its adjusted earnings per share rose 36 percent to 76 cents a share. That was 16 cents higher than the average forecast of analysts surveyed by Thomson Financial.

“LPS has significant earnings power and we expect the company to be an important player in the mortgage industry. While there is substantial uncertainty regarding the company’s heavy regulatory and legal pressures, second-quarter results show operating earnings are improving,” Kraft said.

More bad news for Body Central

Body Central Corp. did it again last week, lowering its sales and earnings forecasts for the third time in three months.

The Jacksonville-based fashion retailer reported second-quarter earnings of 21 cents a share, down from 33 cents last year. Total revenue rose 6.3 percent to $79.4 million, but comparable-store sales, which are sales at stores open for more than one year, dropped by 7.6 percent.

Those results were pretty much in line with what Body Central said in June when it lowered its projections for the second time. But as it announced second-quarter results Thursday, the company also lowered its forecast for the rest of the year.

After forecasting full-year earnings of $1.07 to $1.11 a share in June (down from $1.22 in 2011), Body Central on Thursday lowered its forecast to 80 cents to 83 cents.

Body Central also is projecting comparable-store sales to be down by 8 percent to 10 percent for the full year. Comparable-store sales are a key statistic for retailers, and Body Central’s trend is troubling to investors.

“It is unusual for a company to post two years of double-digit comp gains and suddenly derail to a high-single-digit comp decline. This result and the recruiting of a SVP, general merchandise manager leads us to believe a rebound is not imminent,” Avondale Partners analyst Mark Montagna said in a research note.

Body Central’s stock had been strong after its initial public offering at $13 a share in October 2010, with the double-digit percentage gains in comparable-store sales sending the stock to a high of $30.93 at the beginning of May.

However, the stock plunged to $14.88 on May 4 after its first revised forecast and it fell to $8.22 on June 18 after the second revision.

The stock fell to a new low of $7.71 on Friday after the latest report before closing at $8.22, down $1.37 on the day.

“We believe the stock will remain range bound until investors gain confidence in full-year projections and fundamentals resume a positive trajectory (likely not until 2013), with improved execution. Before becoming more constructive, we would look for sustainable full-price selling, driven by resonating merchandise across categories,” Robert W. Baird analyst Erika Maschmeyer said in a research report.

In the company’s quarterly conference call Thursday, CEO Allen Weinstein expressed confidence that Body Central is taking the right steps to turn the sales trends around.

“Although we’re operating in a difficult retail environment, we believe that some of the challenges that we face are self-inflicted and therefore are in our power to correct,” he said.

Stein Mart has strong July

Jacksonville’s other publicly traded fashion retailer had some good news on sales last week. Stein Mart Inc. reported a strong July.

Total sales for the four weeks ended July 28 rose 4 percent to $69.9 million and comparable-store sales rose 2.8 percent.

“Our increases in comparable-store sales for July and the second quarter reflect improvements in our merchandise and promotional approach,” interim CEO Jay Stein said in a news release.

“We are encouraged by these sales gains, which are an indication that our merchandising strategy is the right one for us,” he said.

Web.com shows positive trends

Web.com Group Inc. last week reported adjusted second-quarter earnings of 38 cents a share, up from 26 cents last year and 2 cents higher than the average analysts’ forecast, according to Thomson.

“Web.com’s growing business momentum led to revenue and profitability that exceeded the high end of our second quarter guidance,” CEO David Brown said in a news release.

The Jacksonville-based company generally sends out very complex earnings reports because of its record of acquisitions, including major deals the past two years to buy competitors Register.com and Network Solutions. Digging through the numbers, analysts found positive trends in the second-quarter report.

“Upon peeling back the onion, the key operational metrics looked strong,” said FBR Capital Markets analyst David Hilal in his research note on the earnings report.

“This was the second full quarter post what we believe was a transformative acquisition, and we believe the company is executing ahead of plan. We believe it is the early days and there is further room to drive subscriber and ARPU (average revenue per user) growth, which should result in accelerating revenue growth and margin expansion,” he said.

Web.com provides website development services for small and medium-sized businesses, and analyst Mitchell Bartlett of Craig-Hallum Capital Group said the company is demonstrating an ability to gain more customers.

“We see a growing need for small businesses to access consumers from the Internet. The breadth of Web.com’s product and services puts them in a good position to grow,” Bartlett said in his report.

“The return to organic growth, improving each quarter over the past several quarters without a major turn in the macro, suggests to us that the company could see excellent growth through the current business cycle,” he said.

Regency funds from operations beat analysts’ forecasts

Regency Centers Corp. last week reported second-quarter earnings of 6 cents a share, down from 14 cents last year.

But the Jacksonville-based shopping center developer’s funds from operations, the key measure used by analysts, increased and beat analysts’ forecasts.

Regency’s core funds from operations were 69 cents a share, 13 cents higher than the second quarter of 2011 and 6 cents higher

than the average Thomson forecast.

Funds from operations are basically earnings excluding depreciation and amortization expenses and gains and losses from property sales.

“We reiterate our ‘outperform’ rating on shares of Regency as we believe an inflection point in portfolio fundamentals has been reached against the backdrop of improving retailer demand for space and limited new supply,” Raymond James analysts R.J. Milligan and Paul Puryear said in a research note after the earnings report.

“While small shop leasing is improving, we still expect it to remain challenged over the near-term as the ‘mom and pops’ have yet to come back into the mix given the lack of financing and low consumer confidence. However, we believe Regency has taken the bulk of its medicine (shop move-outs, disposing of non-core assets), and expect to see the stock work higher as the company posts positive same-store net operating income growth going forward,” they said.

Patriot increases earnings

Patriot Transportation Holding Inc. last week reported earnings of 28 cents a share for the third quarter ended June 30, 3 cents higher than last year. Revenue for the Jacksonville-based transportation and real estate company rose 3.4 percent to $33 million.

Patriot said operating profit in its trucking business fell 6.5 percent in the quarter, affected by increased health insurance and workers’ compensation claim costs, higher vehicle repairs, increased tire prices and cost of growth initiatives.

However, operating profit from developed property rentals jumped 44.5 percent, helped by higher occupancy, lower real estate taxes, maintenance costs and professional fees.

Buyout costs lower Interline earnings

Interline Brands Inc. on Friday said its second-quarter earnings fell by a penny to 28 cents a share, due to costs associated with its pending buyout by two private equity firms. Those fees and expenses lowered earnings by 4 cents a share in the quarter.

Sales rose 5.4 percent to $334.8 million.

Interline has scheduled a special shareholders meeting Aug. 29 to vote on the buyout.

Fidelity raises bid for J. Alexander’s

Fidelity National Financial Inc. last week announced an increase in its bid to add the J. Alexander’s chain to its restaurant business.

After agreeing in June to pay $12 a share to acquire J. Alexander’s Corp., Fidelity last week increased the offer to $13 a share. That increases the total value of the deal from $72 million to $78 million.

The new deal is all cash. In the previous agreement, J. Alexander’s shareholders would have had an option to receive $3 in cash plus one share in Fidelity’s majority-owned restaurant subsidiary, American Blue Ribbon Holdings Inc.

J. Alexander’s had announced the previous week that it received two other potential offers during a “go-shop” period. With the new offer from Fidelity, J. Alexander’s said it is no longer talking to those two other parties.

Safariland buyout complete

Former Armor Holdings Inc. CEO Warren Kanders leads a group that last week completed a $124 million buyout of Safariland from BAE Systems Inc.

Kanders bought the company along with Safariland’s management team.

Safariland makes bulletproof vests and other gear for law enforcement and military clients. London-based BAE acquired the business when it bought out Jacksonville-based Armor for $4.5 billion in 2007.

Armor evolved from bulletproof vest-maker American Body Armor and Equipment Inc. into a major military contractor with a series of acquisitions. One of the acquisitions was Safariland Ltd. in 1999.

BAE said in a May news release announcing the deal in May that Safariland was headquartered in Ontario, Calif., but a release last week from Kanders said it is headquartered in Jacksonville, with operations at the former Armor Holdings facility at the Jacksonville International Tradeport.

The company employs a total of 1,700 people, with other facilities in Casper, Wyo., Pittsfield, Mass., and Tijuana, Mexico.

Coach stock tumbles on disappointing sales

Speaking of companies at the Tradeport, Coach Inc.’s stock plunged Tuesday after reporting disappointing sales trends.

The New York-based handbag and fashion accessories company, which has a major distribution center at the Tradeport, reported earnings rose 27 percent to 86 cents a share in the fourth quarter ended June 30, a penny higher than the average Thomson forecast.

Total sales rose 12 percent to $1.16 billion, but that was lower than the average Thomson forecast of $1.2 billion. Analysts were also disappointed in the company’s North American same-store sales increase of 1.7 percent.

“During the fourth quarter our international sales remained robust, driven by both distribution and productivity increases. In North America, however, an increasingly promotional environment led to lower growth than expected in factory stores,” CEO Lew Frankfort said in a news release.

Coach’s stock fell $11.25 to $49.33 Tuesday, the biggest one-day drop in the stock in 11 years, Bloomberg News reported.

Jacksonville Bancorp falls below Nasdaq requirements

Jacksonville Bancorp Inc. said in a Securities and Exchange Commission filing last week that it is in danger of losing its listing on the Nasdaq Global Market because of a drop in the value of its stock.

Jacksonville Bancorp’s stock fell below $2 two months ago and has been trading recently between $1.40 and $1.50 a share. That put the total market value of publicly held shares below Nasdaq’s minimum requirement of $5 million, it said.

The parent company of the Jacksonville bank has about 5.89 million shares outstanding, making its total value more than $8 million. However, 46 percent of its stock is held by CapGen Capital Group IV LP, and those shares are not considered to be publicly held. So, the value of shares available for public trading is below $5 million.

Jacksonville Bancorp has 180 days to regain compliance to keep its listing, and the shares are continuing to trade on Nasdaq under the ticker “JAXB.”

mbasch@baileypub.com

356-2466

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