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Bill Foley
Jax Daily Record Monday, Aug. 3, 201512:00 PM EST

Another quarter, another Fidelity spinoff

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by: Mark Basch Contributing Writer

What would a Fidelity National Financial Inc. quarterly report be without the announcement of another spinoff?

Yes, it happened again last week. Jacksonville-based Fidelity announced it would distribute its shares in restaurant company American Blue Ribbon Holdings to shareholders of FNFV Group.

Fidelity, through its FNFV unit, owns a 55 percent stake in American Blue Ribbon, which owns the O’Charley’s, Village Inn, Baker’s Square, Max & Erma’s and Ninety Nine restaurant chains.

That business is separate from restaurant company J. Alexander’s Holdings Inc., which operates the J. Alexander’s, Stoney River Steakhouse and Grill, and Redlands Grill chains.

Fidelity, which owns 87 percent of J. Alexander’s, is already well on its way to completing a spinoff of those shares.

“We are committed to an August distribution of the J. Alexander’s common stock to FNFV shareholders,” Fidelity Chairman Bill Foley said in a conference call with analysts.

As for American Blue Ribbon, “we hope to complete that distribution before yearend,” he said.

The American Blue Ribbon spinoff was expected. The only question was when it would happen, because Fidelity doesn’t sit still for long.

To review its activity over the past year, Fidelity, which is mainly a title insurance company, created FNFV as a tracking stock a year ago to represent its investments in non-real-estate-related businesses.

At the end of 2014, Fidelity distributed its majority stake in auto parts company Remy International Inc. to FNFV stockholders.

In May, it launched an initial public offering for mortgage technology company Black Knight Financial Services Inc. Fidelity still holds a majority stake in Jacksonville-based Black Knight.

Fidelity doesn’t only do spinoffs. For example, in June it sold 885,000 shares of FleetCor Technologies Inc. held by FNFV for $135 million.

It may seem like FNFV is running out of investments, as one analyst said to Foley during the conference call, but don’t worry. Fidelity is looking to add new assets to FNFV “so we then can create the same kind of opportunities we created with the restaurant companies and with Remy,” Foley said.

“We now have four or five different transactions of various sizes that we’re taking a good hard look at,” he said.

FNFV reported adjusted earnings of 18 cents a share for the second quarter, although it’s difficult to assess the significance of its earnings, compared with the significance of its transactions. As Fidelity officials always say, they are focused on “monetization” of FNFV’s assets.

Black Knight rises again on earnings

Black Knight reported better-than-expected earnings in its first quarterly report after its initial public offering, sending its stock to another new high.

Adjusted earnings rose 31 percent to $36.8 million, or 24 cents a share. Analysts had been projecting earnings of 17 cents to 20 cents a share, according to Thomson Financial.

Adjusted revenue rose 7 percent to $234.7 million.

Foley, who also serves as chairman of Black Knight, said in that company’s conference call that Black Knight has been successful in executing its profitability and growth strategies “and the results are evident in our financial performance.”

Black Knight’s stock had already risen from its May IPO price of $24.50 and the stock rose as much as $2.60 on Thursday to another high of $33.10 after the earnings report.

“Based on our first two months following the IPO, we believe that the market is excited about the potential for our business to create significant shareholder value,” Foley said.

Fidelity would consider shedding Black Knight

During Fidelity’s conference call, an analyst asked Foley if he would consider shedding the rest of Fidelity’s shares in Black Knight now that Black Knight is public, despite Foley’s desire to keep that business.

Black Knight essentially is the reincarnation of Lender Processing Services Inc., which Fidelity reacquired at the beginning of 2014.

Foley told the Daily Record last year it was “really dumb” to get rid of it in the first place and “we’re not giving it back.”

But in response to the analyst’s question last week, Foley said “we never say never about anything. As you’ve seen in our past activities, we’ve spun off companies. We’ve repurchased companies. We have taken companies public.”

He said Fidelity is hoping to profit from cross-selling opportunities with Black Knight customers, which would be a motivation to hold on to its majority stake in the business.

“So, for the time being, Black Knight is part of FNF, but we always look to maximize shareholder value,” he said.

Fidelity reported adjusted earnings of 65 cents a share in the second quarter, up from 50 cents a year earlier.

“We remain the most profitable title insurance company in the country and believe that our financial performance should warrant a premium market multiple versus our title company peers,” Foley said.

Rayonier announces ‘strategic repositioning’

Rayonier Advanced Materials Inc. has been disappointing investors since the performance fibers company was spun off from Rayonier Inc. a year ago, so the company announced a “strategic repositioning” last week.

The Jacksonville-based company is reconfiguring its main plant in Jesup, Ga., to produce less cellulose specialty products and more fluff and viscose products. This follows a major expansion project that was designed to increase production of cellulose specialties.

“As many of our investors know, over the last two years, the global supply and demand imbalance has adversely impacted the prices for our cellulose specialties products, and in turn our overall profitability. In response to these unfavorable market dynamics, we are changing our strategic direction,” CEO Paul Boynton said in a conference call with analysts.

“Most significantly, we are reducing our cellulose specialties capacity, increasing our commodity production and lowering our overall cost position,” he said.

Although Rayonier AM expects to reduce annual expenses by $14 million, the reconfiguration required a one-time write-off of $28 million.

As a result, the company reported a net loss of 1 cent a share for the second quarter.

However, excluding the write-off, pro forma net income for the quarter was 39 cents a share, well above analysts’ forecasts of 30 cents to 31 cents, according to Thomson.

Investors responded positively to the announcement, with Rayonier AM’s stock rising $1.09 to $13.27 on Thursday.

D.A. Davidson analyst Steven Chercover said in a research note he was happy to see Rayonier AM write off its investment in the expansion project and move on.

“The Jesup expansion will probably make a good Harvard Business School case study, but we’re glad management knows one rule — doing the same thing over and over and expecting a different result is the definition of insanity,” he said.

“Between the $385 million initial investment and $25 million reversal, it will have a learned a $420 million ($10 per share) lesson; new capacity is a four letter word,” he said.

Driver shortage impacts Patriot

Another Jacksonville-based spinoff company has also been struggling with difficult industry conditions.

Patriot Transportation Holding Inc. last week reported lower earnings for the third quarter ended June 30, as the trucking company deals with driver shortages.

Earnings fell 29 percent to $1 million, or 31 cents a share.

This was the first full quarter since Patriot and commercial real estate developer FRP Holdings Inc. split into two companies at the end of January.

Even before the split, Patriot officials were talking about the difficulty of maintaining its driver workforce.

“The driver shortage continues to be our biggest challenge,” Chairman and CEO Tom Baker said in the company’s conference call with investors last week.

“Not only is the competition for drivers more fierce today, but the average age of the driver force is increasing as fewer young people want to enter the industry,” he said.

Baker said it is costly to recruit and train drivers.

“We need more success in retaining our drivers and more pricing to help cover the increased cost,” he said.

Web.com beats forecasts

Web.com Group Inc. continued its rebound from a disappointing 2014 with higher-than-expected second-quarter earnings.

The Jacksonville-based company, which provides website development services for business, reported adjusted earnings of 60 cents a share, 2 cents lower than last year but above the company’s forecast of 56 cents to 57 cents.

Adjusted revenue of $140 million was also slightly lower than the 2014 second quarter, but higher than the company’s forecast of $137 million to $138.5 million.

“During the second quarter we saw a continued improvement in our operational performance, which gives us confidence in our ability to deliver sequential revenue growth in the back half of the year,” CEO David Brown said in Web.com’s conference call Thursday.

EverBank hikes dividend

EverBank Financial Corp. last week reported higher second-quarter earnings and also increased its dividend by 50 percent.

The Jacksonville-based banking company said it was increasing its quarterly dividend payment from 4 cents a share to 6 cents.

EverBank has been consistently paying a dividend to shareholders since it went public three years ago, starting with a 2-cent payment in the third quarter of 2012.

The company reported adjusted earnings of 35 cents a share for the second quarter, up 8 cents from the second quarter of 2014. The earnings matched the average forecast of analysts, according to Thomson.

“Our core performance was strong in the quarter. During the quarter, we achieved robust loan growth and a significant increase in net interest income while maintaining our outstanding credit quality and continuing to improve our operating efficiency,” President and CEO Robert Clements said in EverBank’s conference call.

Atlantic Coast Financial earnings flat

Atlantic Coast Financial Corp.’s second-quarter earnings were about even with last year’s, excluding the impact of a couple of moves to improve its long-term finances.

The Jacksonville-based parent company of Atlantic Coast Bank reported earnings of 36 cents a share for the quarter, up from 2 cents in the second quarter of 2014. However, this year’s earnings included a one-time income tax benefit, partially offset by penalties for the prepayment of debt, which added 34 cents to second-quarter earnings.

Without that, earnings would have been flat.

FBR Capital Markets analyst Scott Valentin, the only analyst covering Atlantic Coast Financial, said the adjusted earnings were 3 cents lower than his forecast of 5 cents a share.

However, he said in a research note he remains optimistic because of the benefits the company will get from its financial moves, including an improved net interest margin.

“While EPS missed our forecast, we believe investors should focus on the long-term outlook of the company,” said Valentin, who maintains an “outperform” rating on the stock.

Interline earnings rise

After announcing an agreement to be acquired by The Home Depot Inc. the previous week, Interline Brands Inc. reported higher second-quarter earnings Friday.

The Jacksonville-based distributor of maintenance, repair and operations products reported sales rose 5.2 percent in the second quarter to $447.7 million and operating income increased 2.3 percent to $19.2 million.

Home Depot said it expects to complete the acquisition of Interline in the third quarter.

Almost Family buys Jacksonville business

Almost Family Inc., a publicly traded provider of home health nursing services, announced that it acquired Jacksonville-based Ingenios Health Co.

Ingenios is a provider of technology-enabled in-home clinical assessments for Medicare and Medicaid programs, Almost Family said.

Louisville, Ky.-based Almost Family said it bought Ingenios for $2 million in cash plus 260,000 shares of Almost Family stock, which were trading at $43.85 when the deal was announced. That made the total value of the deal $13.4 million.

Almost Family, which reported revenue of $256 million in the first half of this year, said the Ingenios acquisition will be “mildly dilutive” to earnings per share this year but accretive by 2017.

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