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- 2014 - February - 10th -

Jacksonville helping rebound in public company listings

By Mark Basch, Contributing Writer

The Wall Street Journal last week reported that the number of companies traded on major U.S. stock exchanges rose last year for the first time since 1999, increasing by 92 to 5,008.

The Journal cited that data from the World Federation of Exchanges as a significant indication of recovery for U.S. markets.

Based on what’s happening in Jacksonville, we could be looking at more of a recovery in 2014. This promises to be a year in which the number of Jacksonville-based public companies increases significantly.

In the past couple of weeks, we’ve seen Rayonier Inc. announce plans to split into two publicly traded companies, and Patriot Transportation Holding Inc. said it is moving forward with its plan to split into two.

Meanwhile, we’re looking forward to an initial public offering this year from Southeastern Grocers Inc., the parent company of the Winn-Dixie and Bi-Lo supermarket chains.

True, we did lose one public company on the first trading day of this year when Fidelity National Financial Inc. completed its acquisition of Lender Processing Services Inc., reducing the number of Jacksonville-based public companies to 17.

However, Fidelity returned the favor 10 days ago by announcing a plan to create a tracking stock for its investments in non-title insurance-related businesses, such as restaurant chains and auto parts company Remy International Inc.

Actually, the tracking stock, called Fidelity National Financial Ventures (FNFV), might not qualify as a listed “company” because it will technically not be an independent company. It will be a stock that tracks the financial performance of the businesses included in FNFV, but it will be traded on the exchanges like any other stock.

Still, the addition of the new independent companies created by the Rayonier and Patriot spinoffs and the public listing of Southeastern Grocers will increase our roster of local public companies to 20, and we’re only one month into the new year.

Spinoffs have become very common in the market, including several companies with large Jacksonville operations.

In late 2012, ADT Corp. was spun off from Tyco International Ltd. and Kraft Foods Group Inc., which includes the Downtown Maxwell House coffee plant, split into two. Simon Property Group is planning a spinoff company holding some of its smaller regional malls, including the Orange Park Mall.

At Patriot’s annual meeting last week, I asked Executive Chairman John Baker if there was some kind of overall market-related trend behind all these spinoffs. In Patriot’s case, it just makes sense, he said.

“We’ve got two different businesses with no synergy,” Baker said. “Shareholders will be far better served if we split them.”

Patriot operates a transportation company that trucks petroleum products in the Southeast and a commercial real estate company that develops properties mainly in the Baltimore-Washington-Northern Virginia market.

Baker said that makes it difficult to attract analyst coverage, which raises the profile of the stock, because securities analysts tend to specialize in one industry.

“We don’t have any trucking analysts following us,” he said.

Rayonier has the same issue, as it is splitting off its performance fibers manufacturing business from its timber and real estate development businesses.

Rayonier attracts coverage from forest products analysts, but the performance fibers company is expected to be followed by analysts covering the specialty chemicals business.

Patriot, which itself was created as a spinoff from Florida Rock Industries Inc. in 1986, has been thinking about a split since at least 1999, but market conditions keep getting in the way.

“We were going to spin it off in 2008” before the market collapsed, Baker said. “Thank God we didn’t.”

Despite a rough start for the market in January, it looks like 2014 may be the right year to add more public companies.

FIS rises on positive outlook

Fidelity National Information Services Inc., or FIS, reported fourth-quarter adjusted earnings of 76 cents a share, 8 cents higher than the previous year but 2 cents lower than the average forecast of analysts surveyed by Thomson Financial.

Despite the earnings miss, FIS’ stock rose $2.08 to $50.95 Tuesday after the earnings report.

“We thought the stock might be down slightly today, but understand why it’s up (combination of a big buyback, solid revenue guidance, and incremental investments explaining the lower EPS growth),” Robert W. Baird analyst David Koning said in a research note.

In addition to its earnings report, FIS also announced a program to repurchase up to $2 billion in stock, which potentially increases the value of shares outstanding in the market.

Jacksonville-based FIS, which provides technology services for banks, projected 2014 earnings of $3.05 to $3.16 a share, which might be a disappointment because the average analysts’ forecast was $3.15.

However, FIS said one reason that earnings could be lower than some had hoped is that the company is making investments to grow the business.

J.P. Morgan analyst Tien-tsin Huang said in a research report that the costs of those investments could reduce earnings by 7 cents a share this year, but he and other analysts think this will be money well spent as banks’ technology needs evolve.

“We believe that these investments set the stage for stronger top-line growth in the outer years, which coupled with continued secular shift to outsourcing, strong growth of the card business, and rising mobile presence creates a solid story for the long run,” Barclays Capital analyst Darrin Peller said in his report.

The new share repurchase program follows an announcement the previous week that FIS was raising its quarterly dividend by 2 cents a share. CEO Frank Martire said in the company’s quarterly conference call that FIS is focusing on returning cash to shareholders when it can.

“All of these actions reflect the confidence we have in our business and underscore our commitment to further enhancing shareholder returns. By all accounts, 2013 was another successful year,” Martire said.

Web.com beats forecasts

Web.com Group Inc. Thursday reported fourth-quarter adjusted earnings of 59 cents a share, 14 cents higher than the previous year and 2 cents higher than the average forecast, according to Thomson.

Adjusted revenue for the Jacksonville-based company, which provides website development services for businesses, rose 11 percent to $139.5 million.

In the company’s conference call with analysts, Chairman and CEO David Brown said that was Web.com’s largest organic revenue growth in seven years.

“This double-digit growth is a major milestone for the company to generate on the much larger customer base from our acquisitions of Network Solutions and Register.com,” he said.

“This is a validation of the strategy we’ve put in place of upselling and cross-selling our portfolio of valued-added services into our subscriber base,” Brown said.

Chief Financial Officer Kevin Carney said in the conference call that Web.com expects adjusted earnings of $2.45 to $2.54 a share this year, up from $2.13 in 2013. That’s in line with the average analysts’ forecast of $2.48.

FBR Capital Markets analyst Samad Samana said he is maintaining his “outperform” rating on the company’s stock.

“Our thesis on Web.com has been that the company can successfully sell higher-dollar services into its large commodity domain sub base, while growing the sub base through better branding and maintaining low churn. This quarter’s results reflect good execution against this strategy,” Samana said in a research note.

Stein Mart sales drop in January

Stein Mart Inc., which has been consistently growing sales each month, said last week that comparable-store sales dropped in January by 0.7 percent.

Comparable-store sales, which are sales at stores open for more than one year, are a key indicator of a retailer’s performance.

“Our January sales were clearly impacted by the severe weather throughout most of the country. Factoring this out, our sales results for January were consistent with our performance through year-to-date December,” CEO Jay Stein said in a news release.

For the fiscal year ended Feb. 1, comparable-store sales rose by 3.7 percent.

Total sales in the January period dropped by 18.4 percent to $64.4 million, but Stein Mart said the previous fiscal year included an extra week in January 2013 that brought in $15.8 million in sales.

For the entire fiscal year, the Jacksonville-based fashion retailer’s total sales rose 2.5 percent to $1.26 billion.

Flowers still mum on Hostess bakery

We’ve been waiting and waiting to see what Flowers Foods Inc. will do with the former Hostess Brands Inc. bread bakery in Jacksonville that it acquired last year. We may finally get an answer next month.

Thomasville, Ga.-based Flowers acquired 20 Hostess bakeries and its bread brands in a U.S. Bankruptcy Court auction last year. Those bakeries were shut down when Hostess went out of business in November 2012, including the Jacksonville plant that employed 128 people.

Flowers already operates one of its own bread and bun bakeries in Jacksonville and it has not said if it was willing to operate a second one.

Hostess did reopen one Hostess bakery in Nevada last year and in its quarterly conference call last week, CEO Allen Shiver said it will open a second “in a few months,” but he did not give the location.

“We know you will want to understand more fully what our plans are for the Hostess bread assets that we acquired in 2013,” he said.

“We are carefully reviewing the business and considering the best use of the assets. In doing so, we are gaining a clearer picture of market demand and what capacity will be required over time. At our March 20 Analyst Day, we will be able to share a longer-term plan for the acquired Hostess bakeries and brands,” he said.

Regency Square occupancy drops again

Amid continued rumors of a possible sale, the owner of Regency Square Mall reported another drop in occupancy last week.

In its year-end financial report, General Growth Properties Inc. said Regency Square’s 1.4 million square feet of space was only 37.9 percent leased. That’s down from 43.8 percent at the end of the third quarter and 60.1 percent at the end of 2012.

As it has been saying in its previous quarterly reports, General Growth said Regency Square has been “transferred to the special servicer,” which has been handling the property, without giving more details.

Chicago-based General Growth’s total portfolio (excluding Regency Square) of 120 U.S. malls with 125 million square feet of space was 97.1 percent occupied at yearend, the company said.

Continental Building completes IPO

Continental Building Products Inc.’s initial public offering was priced lower than the company hoped, but the stock did rise on the first day of trading.

Continental, which had hoped to sell its shares at $16 to $18 each, sold 11.8 million shares at $14 each. The stock did rise $1.19 to $15.19 on Wednesday after completing the IPO.

Virginia-based Continental, which manufactures gypsum wallboard and complementary finishing products, operates three drywall plants, including one in Palatka.

Continental was taken public by the same private equity firm which is looking to take Southeastern Grocers public, Dallas-based Lone Star Funds.

Lone Star still controls 69 percent of Continental’s stock after the IPO, according to a Securities and Exchange Commission filing.

mbasch@baileypub.com

(904) 356-2466

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