Florida East Coast earnings improve; will there be an IPO?
Florida East Coast Holdings Corp. reported improved quarterly results as we wait for the company to launch an initial public offering. At least, I’m waiting for the Jacksonville-based railroad company’s IPO. It seems inevitable.
Florida East Coast operates the historic 351-mile railroad from Jacksonville to Miami that was built by Henry Flagler a century ago.
Its parent company, Florida East Coast Industries Inc., was acquired by funds affiliated with Fortress Investment Group LLC in 2007, the same year that Fortress acquired RailAmerica Inc.
Fortress took Jacksonville-based RailAmerica public in 2009 and recently reached an agreement to sell the entire company to Genesee and Wyoming Inc.
Logically, Fortress will eventually take the same path with Florida East Coast. When buyout firms acquire public companies and take them private, the usual scenario is that the buyout firm seeks to improve operations and then cash out with an IPO or an outright sale of the company.
Florida East Coast’s second-quarter results show the company is improving its financial performance. Although it’s not public, the company files quarterly reports with the Securities and Exchange Commission because of public notes that it issued.
The company had a net loss of $4.1 million, due to interest payments on its debt that it could possibly pay off with an IPO.
Meanwhile, operating income before the interest payments jumped 82 percent to $11.8 million.
Revenue rose 10 percent to $58.5 million and the company’s operating ratio (operating expenses divided by revenue) fell from 87.8 percent a year earlier to 79.9 percent in the second quarter this year.
“This improvement (in operating ratio) was primarily due to higher revenue driven by increased rates per unit, increased carload volumes, as well as productivity improvements,” the quarterly report said.
It is of course, pure speculation to say that Fortress will be taking Florida East Coast public, but it’s hard to believe that it’s not going to happen. The only question is, when?
Global Axcess introduces new CEO
After going nearly a year and a half with interim chief executive officers, Global Axcess Corp. used the occasion of its quarterly conference call last week to introduce a new permanent CEO.
Kevin Reager, who has nearly 25 years of experience in the automated teller machine industry, is the new president and CEO of Jacksonville-based Global Axcess, which operates ATM and DVD kiosk networks.
“We received over 20 resumes for the position and concluded after the interviewing process that Kevin was the best candidate for the position,” Chairman Joseph Loughry said in the conference call.
“He has turned around and restructured ATM operations in multiple situations to stabilize the business and provide the platform for growth and for exploration of strategic alternatives,” he said.
“Global Axcess has faced major challenges over the past few months, but I’m excited about the future,” Reager said in the call.
“Most of what the company needs to do to become strong again is already under way,” he said, outlining “three broad steps or areas that are critical to maximize value.”
Those areas are a “solid sales strategy,” addressing short-term cash issues and making technical improvements to “fix the core” of the business, Reager said.
“These are not overnight fixes and they will take the efforts of the team to implement. The positive side is that these are not long-term or insurmountable problems,” he said.
“I’ve been in this business a long time and I can tell you that the base portfolio is solid and the internal challenges represent opportunities for EBITDA (earnings before interest, taxes, depreciation and amortization) improvement,” he said.
Global Axcess reported a net loss of $576,108, or 3 cents a share, in the quarter. Revenue fell 1.7 percent to $8.2 million.
A special dividend from Stein Mart?
Stein Mart Inc. was sitting on a pile of cash at the end of the second quarter, and one analyst thinks the Jacksonville-based company may use that to pay shareholders a special dividend.
“We believe Stein Mart is a prime candidate for a special dividend because 1) it has the cash, 2) only one vote really matters, and 3) it has a history of special dividends,” Avondale Partners analyst Mark Montagna said in a research note.
Stein Mart has a limited history of paying regular cash dividends to shareholders. It paid dividends of 6.25 cents a share for eight quarters in 2006 and 2007 before cutting them out when the recession hit. But when the company had a lot of cash available in the past, it paid special dividends of $1.50 a share in 2006 and 50 cents in 2010.
The company had $94 million in cash on its balance sheet at the end of the second quarter. Montagna said a 50-cent dividend would cost the company $21 million.
The one vote that matters, of course, is Chairman and interim CEO Jay Stein, who controls 35 percent of the stock.
Montagna said the prospect of tax changes in 2013 makes the timing right for a special dividend this year.
“Depending on the outcome of the presidential election, the tax rate could rise dramatically on dividend income for high income earners. Dividend income is currently taxed at 15 percent and certain high-income earners could see their dividend tax rate at 45 percent in 2013,” he said.
Trailer Bridge valued at $20.9 million
After emerging from Chapter 11 bankruptcy in the spring, Trailer Bridge Inc. was valued at about $20.9 million, according to figures on an SEC report filed by the company’s largest shareholder.
Trailer Bridge’s bankruptcy reorganization plan gave most of its stock, which is no longer publicly traded, to its senior noteholders. Fort Lauderdale-based Seacor Holdings Inc. became the largest shareholder with 47.3 percent of the stock.
According to Seacor’s midyear report filed with the SEC, its Trailer Bridge stock was valued at $9.9 million. That would put the total value of the Jacksonville-based marine and freight trucking company at approximately $20.9 million.
Stakool reports quarterly results
Jacksonville-based Stakool Inc. reported second-quarter revenue of $6,935 and a net loss of $77,299, according to a report filed with the SEC.
Stakool is the parent company of Anthus Life Corp., which manufactures a line of natural and organic food products. The company offers energy bars under the brand name “Natural plus Energy” and, according to the SEC filing, is working on additional products such as energy drinks, snacks and cookies.
Its stock trades in the over-the-counter market under the ticker symbol “STKO.”
Ratings agencies weigh in on Fidelity
After Fidelity National Financial Inc. last week issued $400 million in notes (a form of debt), two ratings agencies commended the company’s performance in tough economic times. However, both agencies also said Fidelity’s penchant for acquisitions carries some risk.
“Fidelity National’s leading market share and effective expense management have enabled the company to do well despite a difficult real-estate market, where low levels of housing resale transactions have dampened revenue,” Moody’s Investors Services Senior Credit Officer Paul Bauer said in a news release.
But Moody’s added that Fidelity’s strengths “are tempered by the company’s historic record of occasionally using significant amounts of financial leverage, a somewhat aggressive acquisition record, significant regulatory and legal risk, and by volatility in the group’s revenue base and profit margins reflecting the fundamental cyclicality of the title insurance business.”
Fitch Ratings cited Fidelity’s “sustained profitability despite challenging economic and real-estate market conditions, improved capital position, and adequate reserve position” in its news release.
“Offsetting these positives is Fitch’s concern about FNF’s capital management strategy and willingness to periodically increase balance sheet financial leverage to fund acquisitions, which Fitch views as a limiting factor to the company’s rating. While FNF has been successful to date in most of its acquisitions, past success does not guarantee future success,” it said.
Moody’s assigned a Baa3 rating to the $400 million in notes and Fitch rated them at BB-plus, which is a slightly riskier rating than the one given Fidelity by Moody’s.