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PHH now just a mortgage company

From Staff

After months of speculation about its future, it looks like PHH Corp. is moving forward strictly as a mortgage banking company.

PHH last week announced an agreement to sell its other business, fleet management services, to Element Financial Corp., for about $1.4 billion in cash.

PHH said in February it was exploring the possibility of splitting up its two businesses or selling off one or both of them but as the fleet services deal was announced, PHH said it will use some of the proceeds for “selective growth investments” in the mortgage business.

“We are confident that we have the right strategy in place to respond to changing mortgage market dynamics and sustain a leading position in the mortgage industry,” CEO Glen Messina said in a news release.

PHH is one of the nation’s biggest mortgage banking companies, ranking seventh in loan originations and eighth in volume of loans serviced last year, according to Inside Mortgage Finance.

The mortgage business runs out of PHH’s corporate headquarters in Mount Laurel, N.J., and a second operations center in Jacksonville.

The changing dynamics have had an impact on its Jacksonville operations. The company last fall cut about one-third of its local workforce, leaving it with about 700 jobs in Jacksonville.

Last week’s deal to sell the fleet business should be good news for the remaining Jacksonville employees.

“After considering the comments by management in the press release, we believe the chances the mortgage business will be sold in the near-term are lower,” Compass Point analyst Kevin Barker said in a report.

However, analysts have questions about PHH’s future profitability as a focused mortgage company. Moody’s Investors Service said it is reviewing PHH’s corporate credit rating for a possible downgrade.

“In selling the operationally and financially more stable and more profitable fleet business, PHH becomes a cyclical, low margin, lower franchise strength prime mortgage banking business,” Moody’s said in a news release.

“It is likely that it will take several years before the company can re-establish acceptable levels of profitability. This is due in part to the low origination volumes and gain-on-sale margins that Moody’s projects over the next several years,” it said.

Barker lowered his rating on PHH’s stock from “buy” to “neutral,” saying the proceeds from the fleet sale were lower than expected and that the earnings potential of the mortgage business don’t justify a higher stock price.

PHH said it expects the net gain from the sale of the fleet business to be $250 million to $300 million, but Barker said that is about $100 million less than he expected.

PHH’s stock had risen from a little more than $21 three weeks ago, when Reuters news service broke the story that the company was negotiating the fleet sale with Element, to $25.25 last Monday before the agreement was announced.

The stock fell to $23.59 Tuesday after the deal was announced.

Sterne, Agee & Leach analyst Henry Coffey is more optimistic about PHH, maintaining a “buy” rating and increasing his price target for the stock from $27 to $30 in a report Friday.

“We see the sale of fleet as the beginning of a process that should result in the combined mortgage business being able to earn a consistent, potentially relatively high level of profitability,” Coffey said.

“The transaction is expected to close by the end of July and we expect between now and then to hear more about the company’s plans to buy back stock, fix the profitability of its originator, and pay down corporate debt, “ he said.

Latitude 360 completes merger with public company

Jacksonville-based Latitude 360 Inc. last week said it completed its merger with Kingdom Koncrete Inc. to become a publicly-traded company.

Latitude 360 operates restaurant and entertainment venues in Jacksonville, Pittsburgh and Indianapolis, and is planning a fourth venue in Albany, N.Y.

Under the merger plan, Kingdom Koncrete, which provides pre-mixed concrete for customers, will remain as a subsidiary of the company.

Texas-based Kingdom Koncrete reported revenue of $27,160 in the first quarter this year. The company has not reported financial data for Latitude 360’s business.

The shareholders of Latitude 360 when it was still a private company now own 98.9 percent of the shares of the publicly-traded company, according to a Securities and Exchange Commission filing.

Before the merger was completed, Kingdom Koncrete revealed in another filing that the SEC is investigating the company for alleged securities law violations.

According to the filing, the allegations are that a shareholder “actively participated in management of the company, without appropriate disclosure in the company’s (SEC) filings” and that the company used proceeds from a stock sale “in a manner inconsistent with the disclosure in the ‘Use of Proceeds’ section of the applicable registration statement” with the SEC.

Kingdom Koncrete said in the filing that the allegations are “unfounded.”

Latitude 360 said in a news release that the matters occurred before the merger, but it will “fully cooperate” with the SEC.

Although the merger was completed and the company’s name was officially changed to Latitude 360, the stock continued to be listed last week under the Kingdom Koncrete name in the over-the-counter market and under the concrete company’s “KGKO” ticker symbol. Latitute 360 has applied to change the ticker to “LATX.”

Landstar expects strong quarter

Based on its results from April and May, Landstar System Inc. CEO Henry Gerkens expects the Jacksonville-based trucking company to meet its projections of a strong second quarter.

“Landstar continues to operate on all cylinders,” Gerkens said in his mid-quarter conference call update last week.

He said revenue in the first two months of the quarter was “well above” the revenue generated in the same period last year, so he is “very comfortable” with Landstar’s projections for earnings and revenue.

He said earnings should be in the middle to upper end of its forecast range of 73 cents to 78 cents a share, compared with 64 cents in the second quarter of 2013.

Revenue should be in the upper end of its forecast range of $750 million to $800 million, compared with $679 million a year earlier.

Gerkens also expressed optimism about business trends for the rest of this year.

“Current economic forecasts indicate industrial production will increase in the back half of the year, which will only further benefit Landstar,” he said.

Stein Mart sales up in May

Stein Mart Inc. reported total sales for the four weeks ended May 31 rose 2.2 percent to $109.6 million and comparable-store sales –– sales at stores open for more than one year –– rose 0.4 percent.

The Jacksonville-based fashion retailer opened two new stores in Aventura and in Falls Church, Va., during the month, bringing its total to 265 stores at the end of May.

Analyst still positive on ACFC

The only analyst following Atlantic Coast Financial Corp., Scott Valentin of FBR Capital Markets, reiterated his “outperform” rating on the Jacksonville-based bank’s stock after a thorough review of its first-quarter results.

“Following the completion of the capital raise in December 2013, we continue to believe that management’s success reinvigorating Atlantic Coast will be apparent in the second half of 2014, as the recent personnel additions gain traction, generating loan and revenue growth,” Valentin said in his report.

Valentin raised his earnings forecast for this year from 9 cents a share to 10 cents after the parent company of Atlantic Coast Bank reported a surprising profit of 1 cent a share in the first quarter, while Valentin was anticipating a slight loss.

He said increased expenses for compensation may hold back earnings a bit, but that’s a good thing for the long term.

“We believe the company is ahead of plan regarding hiring and expect the benefits to be reflected in second-half revenue. We also expect that with improved capital ratios and asset quality, other costs should decline,” he said.

Graham Holdings continues diversification

While PHH is becoming singularly focused, Graham Holdings Co. is becoming more diverse and a company that is actually very hard to describe.

Graham Holdings was formerly a pillar of the news business which owned The Washington Post and a group of television stations, including WJXT TV-4 in Jacksonville.

However, the company sold off the Post and its other newspaper holdings last year and is making some unusual acquisitions, at least based on what the company used to be.

Last week, Graham Holdings announced the acquisition of Joyce/Dayton Corp., a manufacturer of screw jacks and other linear motion systems.

CEO Donald Graham said in a news release that the deal is part of the company’s “ongoing strategy of investing in companies with demonstrated earnings potential and strong management teams attracted to our long-term investment horizon.”

Graham Holdings’ business interests continue to include educational services company Kaplan and in the news

release, it described itself as “a diversified education and media company.”

“We are a diverse group of businesses sharing common goals and values but each with its own identity and workplace culture, and with management responsible for its operations,” Graham said.

Coach falls further on analyst downgrade

Coach Inc.’s stock fell to its lowest level in almost four years Wednesday after Sterne, Agee & Leach analyst Ike Boruchow lowered his rating on the handbag and fashion accessories company from “buy” to “neutral.”

“Visibility into a North American turnaround remains low, current trends are likely lackluster, the balance sheet/cash flow dynamics are worsening, and valuation is no longer compelling,” Boruchow said in his research note.

Coach, which has a major distribution center in Jacksonville, has been hurt by declining sales at its North American stores.

“While the company’s strategies to kick start the business may bear fruit over the long term, we believe fundamentals will remain challenged in the near term, which continues to put both earnings and the multiple at risk,” Boruchow said.

Coach will be holding an “analysts day” next week.

“We believe the company could lower expectations for fiscal year 2015 (particularly on the margin side) once again, in which case the stock would not likely move higher, regardless of the long-term vision potentially conveyed by management. Essentially, there just aren’t a lot of positives that can be clearly articulated at this point,” Boruchow said.

Coach’s stock fell as much as $1.32 to $38.70 Wednesday after the downgrade.

mbasch@baileypub.com

(904) 356-2466

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