- 2014 - February - 3rd -

Rayonier split demonstrates the value of land

By Mark Basch

We all remember the lesson from Scarlett’s father in “Gone with the Wind”: “Land is the only thing in the world worth working for, worth fighting for, worth dying for, because it’s the only thing that lasts.”

Well, if you doubted the value of land above all else, take a look at Rayonier Inc.’s plan to split the company in two.

Jacksonville-based Rayonier last week announced a plan to split into two public companies: one consisting of its performance fibers business and the other consisting of its timberlands and developable real estate.

When you look at Rayonier’s financial results as a single company, the performance fibers business looks more valuable. Last year, that part of the business produced $1.04 billion of Rayonier’s total revenue of $1.7 billion, and $311 million of the company’s total operating income of $406.7 million.

However, when analysts evaluate the two businesses separately after the split, it’s the timberland and real estate company that is far more valuable and is expected to produce higher earnings.

Rayonier’s stock has been trading in the mid-$40s recently. Vertical Research Partners analyst Chip Dillon said in a report last week that he values the timberland and real estate company, which will retain the Rayonier name, at $28 a share.

Dillon values the performance fibers business, which has not yet been named, at $16 a share.

Because they will be very different businesses, Dillon uses different methods to value the two companies, but he does project the new Rayonier to have higher earnings ($1 a share) than the performance fibers company (95 cents a share) this year.

Among other factors, the performance fibers company will carry a higher debt load, so it will have higher interest expenses.

Analysts do think the split is a good idea.

“We applaud the decision, but take a cautious view of near-term upside in the stock. The two businesses are quite different and appeal to different types of investors. We also believe that the two businesses will run more efficiently and in a more disciplined manner on a standalone basis,” Deutsche Bank analyst Mark Wilde said in his report.

Wilde said the performance fibers business will be facing challenges.

“While the initial focus is apt to be on reducing debt, we think performance fibers could pursue consolidation in its core market or product line extensions. Alternatively, Rayonier’s global leadership in high-end cellulose specialties could make it an attractive bolt-on for a large commodity pulp producer,” he said.

Wilde values the performance fibers company at $10 to $11 a share, and the new Rayonier at $33 to $34.

Landstar issues murky earnings

Landstar System Inc. issued a murky fourth-quarter earnings report Thursday, as a big gain from the sale of its Landstar Supply Chain Solutions companies made it difficult to dig out the relevant numbers.

Excluding the impact of the sale, Landstar said its earnings from continuing operations were 55 cents a share, in line with its forecast of 52 cents to 55 cents.

As with the banking companies, Landstar investors will more likely be focused on future earnings, and Chairman and CEO Henry Gerkens said in a news release that he is optimistic about the first quarter of 2014.

Gerkens said the Jacksonville-based trucking company’s 2013 earnings and revenue from continuing operations were the second-highest in the company’s history “despite the sluggish industrial freight environment that existed throughout almost all of 2013.”

He said favorable revenue trends in December continued into January. If those trends continue, Landstar projects earnings from continuing operations of 56 cents to 61 cents a share in the first quarter, up from 55 cents last year. Revenue is projected to be $640 million to $690 million, up from $623 million last year.

EverBank positioned for 2014

EverBank Financial Corp. last week reported adjusted fourth-quarter earnings of 24 cents a share, 10 cents lower than the fourth quarter of 2012 and a penny below the average forecast of analysts surveyed by Thomson Financial.

Analysts weren’t as concerned about the 2013 earnings as they are about the future for EverBank.

“The company is in the midst of a major transformation to its business model that skewed the earnings result and pushed most of the focus on forward guidance,” Compass Point analyst Kevin Barker said in a research note.

Among the transformative actions EverBank took in the fourth quarter to prepare for 2014 were the previously announced sale of its default mortgage servicing business to Green Tree Servicing LLC.

The company also said last week that it sold off “substantially all” of its non-performing commercial loans and real estate owned.

“We believe the actions taken this year position EverBank to benefit from strong organic loan growth, improved efficiency and operating leverage and reduced exposure to market cycle and regulatory uncertainty, and allows us to focus on businesses that provide lending and banking services to our core consumer and commercial clients,” Chairman and CEO Rob Clements said in a conference call with analysts.

Analysts also say EverBank is making the right moves.

“EverBank’s fourth-quarter results evidenced ongoing progress on its strategic initiatives designed to enhance its focus on its core banking and lending clients, simplify its earnings profile, and improve its operating efficiency by exiting non-core businesses,” Barclays Capital analyst Matthew Keating said in a research note.

Keating maintains an “overweight” rating on the stock.

Oppenheimer analyst Terry McEvoy said after the earnings report that he is maintaining an “outperform” rating on EverBank.

“Shares of EverBank have underperformed their peers in 2014 given investor concerns over the profitability pressure in the mortgage banking business. The stock is meaningfully undervalued, in our view, and we feel the company’s business model and growth prospects remain unique in today’s environment,” McEvoy said in his report.

Barker, however, thinks the stock is fairly priced and is maintaining a “neutral” rating.

“Given the commentary we heard, we believe the company is making the right steps to establish a more consistent and predictable earnings base, but we see little reason to bring our 2015 EPS above $1.30 per share. Hence, with the stock trading to 14 times 2015 EPS, it screens as expensive compared to peers,” he said.

Atlantic Coast sheds bad loans

Atlantic Coast Financial Corp. also spent much of 2013 positioning itself for 2014.

The parent of Atlantic Coast Bank completely overhauled its top management and raised additional capital in the second half of the year. Also, the company said last week that it disposed of most of its bad loans and real estate acquired through foreclosure and expects to sell additional non-performing assets during the first quarter this year. That will reduce its level of non-performing assets to less than 1 percent of total assets, it said.

“These actions, coupled with recent additions to staff in new business development roles, have left us well positioned to move the company forward, serve our customers, and create value for our stockholders,” CEO John Stephens said in a news release.

Atlantic Coast Financial reported an adjusted fourth-quarter net loss of 12 cents a share.

Scott Valentin of FBR Capital Markets, the only analyst covering Atlantic Coast Financial, said in a research note that the loss was in line with his expectations, and he maintained his “outperform” rating on the stock.

“Hiring plans are on pace with initial expectations, having made two strategic hires since its recapitalization, and with numerous hires in the immediate pipeline. Given that the company met our expectation for the quarter, our assumptions remain relatively unchanged,” he said.

Valentin projects a net profit of 9 cents a share this year and 27 cents in 2015.

International Baler earnings drop

International Baler Corp. last week reported earnings in the fiscal year ended Oct. 31 fell 43 percent to $683,194, or 13 cents a share.

Sales fell 10 percent to $16.1 million, according to its annual report filed with the Securities and Exchange Commission.

The Jacksonville-based company, which makes baling equipment used for recycling, said sales were hurt by lower demand for balers for cardboard in domestic markets.

International Baler also said shipments of synthetic rubber balers declined in 2013, but that was due to the scheduling of orders for 2013 and 2014.

FIS raises dividend

Before it reports earnings this week, Fidelity National Information Services Inc. last week announced it is increasing its quarterly cash dividend by 2 cents a share to 24 cents.

“Consistent execution has enabled us to raise our dividend for the third consecutive year,” Chairman and CEO Frank Martire said in a news release.

CFPB alleges kickback scheme at PHH

The U.S. Consumer Financial Protection Bureau last week said it is initiating an administrative proceeding against PHH Corp., alleging that PHH harmed consumers with a mortgage insurance kickback scheme.

The CFPB charged that over a 15-year period through 2009, “when PHH originated mortgages, it referred consumers to mortgage insurers with which it partnered. In exchange for this referral, these insurers purchased ‘reinsurance’ from PHH’s subsidiaries.”

The agency said in a news release that “PHH took the reinsurance fees as kickbacks” and “because of PHH’s scheme, consumers ended up paying more in mortgage insurance premiums.”

PHH issued a statement saying the allegations “grossly mischaracterize the legitimate business activities of our mortgage reinsurance subsidiaries.”

The company said the subsidiaries “assumed significant risks, paid substantial claims and we believe complied with applicable statutory and regulatory requirements in existence during the period that such subsidiaries were engaged in the mortgage reinsurance business.”

PHH’s mortgage banking division operates out of two main centers at its headquarters in Mount Laurel, N.J., and in Jacksonville. The company employs about 700 people at its Jacksonville office on the Southside.

The CFPB said it reached settlements last year with five mortgage insurers who participated in similar schemes. It is seeking a civil fine, a permanent injunction to prevent future violations and victim restitution from PHH.

ParkerVision award reduces Qualcomm earnings

Qualcomm Inc. is still fighting the $173 million judgment that a federal jury awarded to Jacksonville-based ParkerVision Inc. last year. However, even though the money hasn’t been paid, Qualcomm recorded the amount as a charge to its earnings for the first quarter ended Dec. 29.

San Diego-based Qualcomm said the charge related to the verdict reduced earnings by 10 cents a share. The company’s total adjusted earnings for the quarter were $1.26 a share.

ParkerVision sued Qualcomm for patent infringement, alleging that Qualcomm illegally used ParkerVision’s wireless technology in its products.

ADT drops on disappointing earnings

ADT Corp. was the worst-performing stock in the Standard & Poor’s 500 index Thursday after a disappointing earnings report.

The Boca Raton-based security services company, which employs about 2,000 people in Jacksonville, reported adjusted earnings of 43 cents a share in the first quarter ended Dec. 23, 6 cents lower than the average forecast of analysts surveyed by Thomson.

Revenue of $839 million was about $10 million below the average forecast.

“Customer growth did not meet our expectations this quarter and we have implemented actions, including improvements in our dealer channel and lead generation process, to regain subscriber traction in the future,” CEO Naren Gursahaney said in a news release.

ADT’s stock fell $6.41 to $31.40 Thursday, a 17 percent plunge. The stock fell as low as $29.56 Thursday morning, its lowest level since the company was spun off from Tyco International Ltd. 15 months ago.


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