When Fidelity National Financial Inc. held its quarterly conference call last week, shareholders were probably glad to hear that lower mortgage rates are sparking an increase in orders for the company’s core title insurance business.
But if you’re like me and you don’t own shares, it’s always more fun to hear about what Jacksonville-based Fidelity is doing outside of the title business. And during last week’s call, Chairman Bill Foley mentioned that Fidelity has made another investment in the restaurant business.
This wasn’t a secret, because Fidelity had already disclosed the investment in a Securities and Exchange Commission filing last month. But this was the first time that anyone at Fidelity publicly talked about its 9.5 percent stake in O’Charley’s Inc.
The Nashville-based company operates 221 O’Charley’s restaurants in 17 states, plus 106 Ninety Nine Restaurants and 10 Stoney River Legendary Steak restaurants.
Foley said Fidelity spent $13.8 million to buy 2.1 million shares of publicly traded O’Charley’s. According to the SEC filing, Fidelity began buying shares in the open market in July. Foley didn’t say why Fidelity had invested in the restaurant company.
Fidelity already has a significant investment in the industry. It owns 45 percent of a partnership that owns the Village Inn, Bakers Square and Max & Erma’s restaurant chains.
It’s part of a longtime Fidelity strategy of investing excess cash in distressed companies that have an opportunity for a turnaround. Those three restaurants were all in Chapter 11 bankruptcy reorganization before Fidelity stepped in.
O’Charley’s seems to be in better shape but the company did lose money every year from 2008 through 2010, and it recorded a small loss of $61,000 on revenue of $458.3 million in the first six months of this year.
In its second-quarter report, O’Charley’s said sales trends are improving, with all three of its restaurant chains showing higher comparable store sales over the previous year.
Meanwhile, Fidelity is also looking at better trends in its title insurance business. Foley said lower mortgage rates sparked a big increase in order volume from July to August, and September orders were about equal with August.
“We expect to see the majority of the revenue and earnings benefit from these increased open order volumes in our fourth-quarter operating results,” he said.
Fidelity’s net income in the third quarter fell by 3 cents a share to 33 cents. Total revenue fell 9 percent to $1.24 billion.
“Fidelity put up another good set of results in the midst of an uncertain mortgage market,” RBC Capital Markets analyst Mark Dwelle said in a research note.
But Dwelle said there is uncertainty in the title insurance business because the homebuying market is still weak and the low interest rates sparking the refinancing market may not last.
“Given these caveats and uncertainties, we believe there is still a positive bias to the story for investors with an 18-to-24-month outlook on the real estate market. The purchase market is still very weak, but refinancing activity is stable and the company’s commercial business arm is showing healthy growth. Management is also very good at keeping costs in line with revenues, and the (stock price) valuation is very reasonable,” he said.
Analysts express concerns over CSX earnings
Although CEO Michael Ward told The Daily Record last week that he was happy with CSX Corp.’s third-quarter earnings increase of 12 percent, some analysts are concerned about underlying trends.
“The results were solid in light of the macro environment, but investors appear worried about the drop in incremental margins,” Dahlman Rose & Co. analyst Jason Seidl said in a research note.
But Seidl maintains a “buy” rating on the stock, saying that profit margins “will recover on strong pricing and improving productivity.”
On the other hand, Robert W. Baird analyst Jon Langenfeld said CSX’s “elevated headcount” may continue to put pressure on profit margins. CSX expects to add a net total of 1,000 workers this year.
Langenfeld is maintaining a “neutral” rating, “given the moderation in volume growth, and in particular the uncertainty surrounding export coal growth trends, as well as the near-term margin pressure from elevated levels of hiring,” he said in his research note.
CSX’s earnings of 43 cents a share equaled analysts’ expectations, breaking a string of 10 straight quarters that the company had beaten forecasts, according to Bloomberg News.
UBS Securities analyst Rick Paterson believes CSX is more likely to continuing beating forecasts.
“CSX is the North American large cap railroad the Street most often underestimates,” Paterson said in a report earlier this month before CSX released third-quarter earnings.
“Over the last five years, CSX is the railroad that has seen the biggest average EPS beat and biggest average monthly revision as the management team is systematically underestimated. It’s our view that the Street still hasn’t learned its lesson on CSX,” Paterson said.
FPIC buyout complete
The Doctors Co. last week completed its acquisition of Jacksonville-based FPIC Insurance Group Inc.
California-based Doctors, like FPIC, is a medical malpractice insurer. Doctors said the merger adds 18,000 insured physicians to its network, bringing its total to 71,000.
Doctors in May agreed to buy FPIC for $42 a share, which was a 31 percent premium over its stock price at the time. Doctors is privately owned.
Doctors said it will operate FPIC as a subsidiary and maintain the company’s office at 1000 Riverside Ave. in Jacksonville.
FPIC employed about 160 people, including 125 in Jacksonville, and all but a handful of top executives were expected to remain with the company after the merger.
Web.com expects more cost cuts
Web.com Group Inc. CEO David Brown told Reuters last week that the Jacksonville-based company now expects more cost cuts than it initially thought from its pending acquisition of Network Solutions.
In a story the company deemed significant enough to post in an SEC filing, Brown said Web.com has found more overlap between the companies than it thought, so he expects more “headcount reduction.”
A company spokeswoman said those cuts will not affect operations in Jacksonville.
When it announced the deal in August, Web.com said it anticipated $30 million in annual cost savings after the merger.
The Reuters story does not put a new number on expected cost cuts.
The merger is expected to close next week.
Rayonier succession plan
Rayonier Inc. announced Friday that Paul Boynton will succeed Lee Thomas as chief executive officer on Jan. 1. The Jacksonville-based forest products company said this is part of a “well-planned transition” that started with Boynton’s appointment as president a year ago.
Boynton has been with Rayonier since 1999.
Thomas has been CEO since 2007. He will continue to serve as chairman until May, at which time Boynton will also assume the role of chairman.
Suter resigns from Trailer Bridge
Trailer Bridge Inc. said in an SEC filing late on Friday that Ivy Barton Suter resigned as CEO. It also said Suter’s resignation will be treated as a termination without cause.
The Jacksonville-based marine and truck freight company said in August that it might have to file for bankruptcy if it could not refinance $82.5 million in notes that are due to be paid off in November.
Executive Vice President William Gotimer and Chief Financial Officer Mark Tanner were appointed as co-CEOs.
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