Since moving its headquarters to Jacksonville in 2003, Fidelity National Financial Inc. already has spun off two additional public companies. In a couple of years, it might create another one.
During its conference call last week to discuss first-quarter earnings, one analyst asked FNF Chairman Bill Foley about the long-term plan for the company’s investments in the restaurant business. Foley said FNF intends to expand the business and possibly take it public.
“We really are viewing the restaurant business as a core opportunity for us,” he said. “We feel like there are several other chains that would be a natural fit into this platform.”
As it grows, in two years or more, FNF will look to “create a public entity that will allow shareholders to invest directly into that restaurant business while Fidelity maintains its majority ownership interest,” Foley said.
FNF is mainly a title insurance company. But it now has a significant investment in the restaurant business. It already owns 45 percent of a company called American Blue Ribbon Holdings, which operates the Village Inn, Bakers Square and Max & Erma’s chains.
It expects in May to complete its acquisition of 100 percent of O’Charley’s Inc., which operates the O’Charley’s, Ninety Nine and Stoney River restaurant chains.
Once the O’Charley’s deal is done, FNF intends to fold that company into American Blue Ribbon, and FNF will end up owning 55 percent of the combined company, Foley said.
As a majority-owned subsidiary, FNF will begin reporting the financial results of the restaurant division in its second-quarter earnings report, he said.
The restaurant holdings currently are producing about $1.25 billion in annual sales and Foley thinks it could reach $2 billion as FNF grows the company.
“We believe ABRH can create significant value for our shareholders in the future,” he said.
FNF also owns 47 percent of auto-parts company Remy International Inc., which has filed plans with the Securities and Exchange Commission to go public. FNF acquired its stake in Remy when the company emerged from bankruptcy in 2007.
So you might say the restaurant business would be the fourth spinoff of a public company by FNF. But Remy was an existing company that FNF bought into, and FNF does not own a majority stake.
The restaurant company, if it does go public, is more of a creation of FNF and it will be majority owned by FNF.
Foley said American Blue Ribbon’s management is already working to turn around O’Charley’s performance, but analyst Mark Dwelle of RBC Capital Markets thinks it could take a while.
“For now, we assume that the company [O’Charley’s] will produce a slight drag on overall results (about 3 cents a share in 2012 and a de minimus amount in 2013) while management executes their turnaround plan,” Dwelle said in a research report.
Meanwhile, FNF’s title insurance business is doing well. FNF reported strong first-quarter earnings of 33 cents a share, up from 19 cents in the first quarter of 2011 and 6 cents higher than the average forecast of analysts surveyed by Thomson Financial.
“This was a great start to 2012 and our strongest first-quarter performance in a number of years,” Foley said.
“Our title business continues to perform extremely well and we are excited about the redeployment of capital into non-regulated opportunities with higher growth and return potential, like the O’Charley’s acquisition, that have the potential to create greater value for our shareholders,” he said.
Dwelle said FNF’s title business produced “another excellent quarter,” but the uncertainty in the housing market could affect future earnings.
“We are counting on management to contain any downside with their ability to manage costs. This goes doubly for O’Charley’s as well, as we believe any slip in the restaurant’s business plan will be punished disproportionately by already skeptical investors,” he said.
FIS has good start to 2012
One of the two public companies already created as a spinoff of FNF, Fidelity National Information Services Inc., also got off to a good start in 2012.
Last week, FIS reported adjusted first-quarter earnings of 55 cents a share, up from 45 cents a year ago and 4 cents higher than the average Thomson forecast.
“We are encouraged by the strong start to the year, which was driven by solid results across all our operating segments,” CEO Frank Martire said in a news release.
Robert W. Baird analyst David Koning said in a research note that he is continuing to recommend the shares of the Jacksonville-based provider of technology services for banks.
“The strong, clean results represent a good start to the year and we believe that estimates and guidance could trend higher through the remainder of 2012 as the environment appears reasonably solid. With continued solid execution, we would expect FIS to trade in line with the S&P or even at a mild premium,” Koning said.
The other public company created by FNF, Lender Processing Services Inc., reports its first-quarter results this week.
Landstar stock plunges despite record earnings
Landstar System Inc. reported record first-quarter earnings of 57 cents a share, up 14 cents from last year and 2 cents higher than the average Thomson forecast. But Landstar’s stock plunged Thursday after the report, falling $3.70 to $53.73.
Revenue rose 13 percent in the quarter to $649 million, but that was below the average Thomson forecast of $660 million.
“While the negative reaction is partly due to a top line miss and a modest EPS beat, aided by a slightly lower-than-expected tax rate, we believe investors were also worried that the pricing environment may be somewhat tempered, something that could limit margin upside in the near term for the Jacksonville-based transportation provider,” Dahlman Rose analyst Jason Seidl said in a research note.
But Seidl maintains his “buy” rating on the stock.
“We continue to believe that Landstar’s unique business model as an asset-light trucking company makes it generally more resilient to economic contractions due to a lower fixed-cost structure and lower capital requirements — without limiting its ability to capitalize on growth during expansionary periods,” he said.
UPS, Aetna disappoint investors
A couple of other companies with big Jacksonville operations also saw their stocks drop Thursday after reporting disappointing first-quarter earnings.
United Parcel Service Inc. said revenue rose 4.4 percent to $13.1 billion and earnings per share rose 10 percent to $1. But the earnings were 2 cents below the average Thomson forecast. Bloomberg News reported that slower growth in overseas shipments hurt UPS’ results.
The company’s stock fell $1.40 to $78.25 after the report.
Meanwhile, Aetna Inc. reported first-quarter earnings of $1.34 a share, 9 cents lower than last year and 6 cents below the average Thomson forecast.
Aetna’s stock fell $4.05 to $45.31 Thursday. Bloomberg said it was the biggest one-day drop for Aetna in three years.
Rayonier beats forecasts
Rayonier Inc.’s first-quarter earnings of 42 cents a share were 5 cents lower than the first quarter of 2011, but 5 cents higher than the average Thomson forecast.
“We are pleased with our first-quarter results, which were better than expected and create a solid base for full year performance,” CEO Paul Boynton said in a news release.
Boynton wasn’t the only one who thinks the first-quarter results portend a good year for the Jacksonville-based forest products company.
D.A. Davidson analyst Steven Chercover said in his research note that “the results indicate Rayonier is off to another record year.”
Chercover said the higher-than-expected earnings resulted mainly from an upside in Rayonier’s performance fibers division, which benefited from a price hike at the beginning of the year.
“We are getting a sense of deja vu all over again in the best possible way with Rayonier, as the strong start to the year provided by the performance fibers business appears sustainable,” he said.
RailAmerica has strong quarter
RailAmerica Inc. reported a net loss of 80 cents a share in the first quarter, due to refinancing charges from paying off debt. But excluding special charges, the Jacksonville-based operator of short-line railroads produced adjusted earnings of 26 cents a share, up from 12 cents last year and 8 cents higher than the average Thomson forecast.
“RailAmerica seems to be hitting on all cylinders with improving volumes, robust non-freight revenue growth and tight cost control,” Wolfe Trahan & Co. analyst Ed Wolfe said in a research note.
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