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Bill Foley

A lot of noise in Fidelity’s earnings report

By Mark Basch, Contributing Writer

In the first quarter since it completed the acquisition of Lender Processing Services Inc. and announced plans for a new tracking stock for its non-real estate businesses, it should have been no surprise that it was difficult to decipher Fidelity National Financial Inc.’s earning report last week.

“While there was a lot of financial noise in the first quarter, we accomplished a number of things,” Chairman Bill Foley said in Fidelity’s conference call with analysts.

“Overall we made significant progress on both the full LPS integration effort and the implementation of growth strategies at Black Knight Financial Services, positioning ourselves for future revenue and margin growth,” he said.

Fidelity merged LPS, which provides technology services for mortgage lenders, with a Fidelity subsidiary called ServiceLink into a new subsidiary called Black Knight.

Besides completing that deal in January, Fidelity also announced plans to create a subsidiary called Fidelity National Financial Ventures, which consists of its non-real estate operations, including a majority interest in several restaurant chains and auto parts company Remy International Inc.

The company plans to issue a tracking stock to its shareholders at the end of the second quarter to represent its interests in FNFV.

After all that, Jacksonville-based Fidelity reported adjusted earnings of 30 cents per share, down from 44 cents in the first quarter of 2013.

That included 26 cents a share from its “core” operations, which consists of its main title insurance business and Black Knight.

Fidelity also said that FNFV had earnings of 4 cents a share.

Foley said the integration of LPS is going well and the company has identified additional cost savings from merging the operations of the companies.

“Overall, we expect operating margins to improve in all of our core businesses as we move through the year as the impact of increased synergies becomes apparent in those core businesses, and we also enter the traditionally stronger spring and summer real estate seasons,” he said.

The cost savings include job cuts.

CEO Raymond Quirk said during the conference call that Fidelity cut 550 positions during the first quarter in its title insurance and ServiceLink operations.

Senior Vice President Daniel Murphy said by email after the call that none of those particular cuts were in Jacksonville. However he did say that Black Knight has cut 149 positions in Jacksonville, which were not mentioned by company officials in the conference call.

Following the merger with LPS, Fidelity now employs more than 3,000 people in Jacksonville in its various operations, Murphy said.

The company employs more than 60,000 people overall, including the operations within FNFV.

FIS earnings rise

The other Jacksonville-based Fidelity — Fidelity National Information Services Inc. — reported adjusted first-quarter earnings rose by 6 cents a share to 68 cents, matching the average forecast of analysts, according to Thomson Financial.

In the company’s conference call with analysts, Chairman and CEO Frank Martire said the results were also in line with its own expectations.

“By all accounts, this is a healthy start to the year and a strong foundation for achieving our 2014 goals. The year-over-year and long-term results we have driven highlights the strength of our operating model and continued steady execution,” he said.

Fidelity National Information Services, commonly known as FIS, provides technology services for banks. It was spun off from Fidelity National Financial but is a completely separate company.

Robert W. Baird analyst David Koning said in a research note that the first-quarter results also met his forecast.

“We are encouraged that the company continues to execute very well, with organic constant-currency revenue growth continuing to be around the mid-single digits and EPS growth remaining in the low to mid-teens (levels sustained for 3-plus years),” he said.

However, Koning maintains a “neutral” rating on the stock, with the shares priced at about $53 when the earnings were reported Thursday.

“We would wait to be more aggressive for a pullback to around $50,” he said.

Rayonier earnings down first quarter

Rayonier Inc. last week reported lower first-quarter earnings as the company moves closer toward splitting into two.

The Jacksonville-based company reported adjusted earnings of 36 cents a share, down from 79 cents the previous year and 10 cents lower than the average analysts’ forecast, according to Thomson.

While its forest resources division reported a slight increase in sales and operating earnings, its real estate and performance fibers divisions both saw declines.

“The two key drivers of the (earnings) miss were real estate and weather,” D.A. Davidson analyst Steven Chercover said in a research note.

“Real estate was virtually non-existent in the first quarter, posting its lowest quarter in recent history.

The second factor, weather, was estimated by management to be a $5 million-$10 million headwind to performance fibers during the quarter stemming from higher fiber and natural gas prices,” he said.

Rayonier is planning to spin its performance fibers division off into a separate public company called Rayonier Advanced Materials Inc.

During the company’s conference call with analysts last week, Chairman, President and CEO Paul Boynton said the split-up is on track and he expects the companies to have separate conference calls at the end of the second quarter because the deal should be complete by then.

“I’m proud of what we’ve accomplished at Rayonier over its many years and I’m excited about the long term prospects that each company has to create shareholder value. As we’ve continued in our transition toward separation, we are even more convinced that this is the right move at the right time for the company and its shareholders,” said Boynton, who will become the head of Rayonier Advanced Materials after the split.

The real estate and forest resources businesses, which will still be named Rayonier Inc., are searching for a CEO.

Chercover has a “buy” rating on the current Rayonier stock.

“Our buy rating remains predicated on the notion that the sum of the parts exceeds the current market value substantially,” he said.

“Once separated, we believe legacy Rayonier could enjoy multiple expansion when viewed as a timber pure play, while Rayonier Advanced Materials could provide value investors with a pure play specialty cellulose company with strong long-term prospects,” he said.

Web.com raises forecast

Web.com Group Inc. last week reported first-quarter earnings that were higher than expected, and also slightly raised its forecast for the full year.

The Jacksonville-based company, which provides website development services for business, reported adjusted earnings of 61 cents a share, up from 48 cents the previous year and above the company’s forecast range of 58 cents to 60 cents.

Web.com also increased its forecast for the full year to $2.49 to $2.56 a share, up from its previous forecast of $2.45 to $2.54. It is projecting revenue of $593 to $600 million for the year.

In its conference call, Chairman and CEO David Brown said the company’s strategy of cross-selling services and building up the Web.com brand is working.

“The success of our strategy is now quite clear, as evidenced by the 12 percent growth in ARPU (average revenue per user) and more than 200,000 net new subscribers we have added since the first quarter of 2012,” Brown said.

“This powerful combination has driven revenue growth from low-single digits to double digits over that period, and we see a long runway of opportunities to build upon that momentum going forward,” he said.

Atlantic Coast Financial turns profitable

Less than a year after shareholders rejected a buyout proposal and its management was overhauled, Atlantic Coast Financial Corp. returned to profitability in the first quarter, its first quarterly profit in almost six years.

The Jacksonville-based parent company of Atlantic Coast Bank reported net income of $206,000, or 1 cent per share, in the first quarter. That was its first profitable quarter since the second quarter of 2008, when the financial crisis was kicking into gear.

“Following a busy end to 2013, highlighted by the successful completion of our capital raise, as well as the steps we took to arrange the disposition of a significant portion of our non-performing assets, we entered the new year with a much stronger financial foundation and greater enthusiasm for the growth prospects of our company,” President and CEO John Stephens said in a news release.

Stephens took over as CEO in September.

Atlantic Coast Financial said its non-performing assets as of March 31 were $8.9 million, or just 1.26 percent of total assets, 70 percent lower than the level of bad assets a year ago.

Non-performing assets include loans in which the borrower is late on payments or is not paying at all.

“Quarterly results for Atlantic Coast Financial were better than expected and place the company ahead of our forecast regarding improving the company’s financial performance,” FBR Capital Markets analyst Scott Valentin said in a research note.

Valentin, the only analyst following Atlantic Coast Financial, had projected the company to report a loss in the first quarter. He has an “outperform” rating on the stock.

EverBank earnings down, as expected

EverBank Financial Corp. last week reported first-quarter earnings of 23 cents a share, 7 cents lower than the first quarter of 2013 but 2 cents higher than the average forecast of analysts, according to Thomson.

Analysts were anticipating the lower earnings following Jacksonville-based EverBank’s sale of a mortgage servicing portfolio to Green Tree Servicing LLC. As part of that deal, 500 EverBank workers were transferred to Green Tree.

“EverBank reported a decent operating result that reflected the transitional quarter we had expected given the company was selling a big portion of the servicing platform and cutting expenses in order to right size for their new strategy,” Compass Point analyst Kevin Barker said in a research note.

“On a positive note, EverBank did record a 4.6 percent increase in loan balances and should be setting up well to continue growing its loan book given the amount of hybrid jumbo loans they continue to produce,” Barker said.

“However, expenses continue to run high compared to other midcap peers and EverBank will need to either invest in marketing or be very competitive on the deposit side to fund the growth expected on the balance sheet,” he said.

In the company’s conference call with analysts, Chairman and CEO Rob Clements said EverBank is “on track on track to deliver the annual portfolio loan growth and expense guidance we outlined in January.”

“We remain focused on building sustainable shareholder value over the long term, and are optimistic about the future for EverBank and its shareholders,” he said.

Coach stock drops on weak sales

Coach Inc.’s stock fell to its lowest level in more than three years last week after another disappointing sales report.

The handbag and fashion accessories company, which has a major distribution center in Jacksonville, reported earnings of 68 cents for the third quarter ended March 29, down from 84 cents the previous year.

However, investors were focused on a 21 percent drop in sales at North American stores open for more than one year. Total sales fell 7 percent to $1.1 billion.

Analysts have said that Coach has been hurt by competition from companies such as Michael Kors Holdings.

In a news release, CEO Victor Luis also said North American sales in the quarter were “exacerbated by the weather and shift of the Easter holiday” from March in 2013 to April this year.

Coach’s stock fell as much as $7.14 to $43.28 over three days following the quarterly report.

ParkerVision sues Qualcomm again

It’s looking like it will take years to resolve the legal dispute between Jacksonville-based ParkerVision Inc. and Qualcomm Inc. over ParkerVision’s allegations of patent infringement by Qualcomm.

ParkerVision last week filed a new lawsuit against Qualcomm and added Qualcomm customer HTC Corp. to this suit, alleging that the companies continue to illegally use ParkerVision’s patented wireless technology.

Meanwhile, a federal judge was listening to arguments from both sides related to appeals of the $173 million judgment against Qualcomm after a jury trial last fall in the original lawsuit.

While Qualcomm is appealing that verdict, ParkerVision is seeking additional payments for future royalties from Qualcomm.

ParkerVision said Friday that the judge ordered the two parties to try and reach an agreement on royalties and to report back to the court within 30 days.

mbasch@baileypub.com

(904) 356-2466

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