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Jax Daily Record Monday, Apr. 24, 201712:00 PM EST

Harrison cryptic on CSX mergers

by: Mark Basch Contributing Writer

“Confusion to the enemy” was a slogan of legendary Jacksonville businessman Ed Ball, who ran the St. Joe Paper Co. empire and was one of the most powerful men in Florida before his death in 1981.

Based on his initial conference call with analysts as chief executive of CSX Corp., Hunter Harrison might have taken lessons from Ball.

During the hour and 50-minute call Thursday, Harrison gave many rambling answers to a series of questions about his plans for reforming the Jacksonville-based railroad company after he became CEO last month.

He left some analysts scratching their heads.

“On the topic of cost savings, there seems to be some confusion among the masses about Hunter Harrison’s pontification on what he was seeing as potential targets for improvements versus actual guidance. On the topic of mergers & acquisitions, there also appears to be confusion (rightfully so) on what was and wasn’t inferred,” said a research note by Stifel analyst John Larkin, who has covered CSX for years.

The confusion about Harrison’s possible merger plans started with a question about improving operations in Chicago, as he replied that “just a stroke of a pen of a partnership could shift a lot of track away from Chicago.”

That led to a follow-up on whether the stroke of a pen would be on a merger agreement. Harrison tried to downplay speculation.

“Look, I don’t have anything in mind. I’ve got a four-year contract. I want to go out at CSX with a blue and gold jersey running under the goal post,” he said, apparently referring to the company’s corporate colors.

“M&A has nothing to do with the strategy of me being here at all,” he said. “One thing I take great pride in is my integrity, OK. I am telling you there is no such plan. I don’t have time. I’ve got four years. It’s not going to happen.”

However, Harrison did say a merger could happen after he leaves, and he reiterated his views that mergers of big railroads would make the industry more competitive.

Harrison’s interest in CSX first came to light in 2014 when, as chief executive of Canadian Pacific Railway Ltd., he proposed a merger with CSX.

Harrison left analysts guessing when he ended the conference call by saying “I gotta run and call Keith, so if you’ll excuse me...”

That was apparently a reference to his successor at Canadian Pacific, Keith Creel.

“An interesting comment to make on an earnings call, in our opinion,” said Larkin.

“Our take is this – Hunter still believes in M&A, but it is not part of his near-term vision for CSX,” Larkin said.

“Longer term Hunter still believes in M&A and that a transcontinental rail will be the best way to service customers, but he considers that above and beyond what we already see as the Street’s discounted improvements for CSX.”

Harrison’s immediate focus is on implementing his philosophy of “precision scheduled railroading,” which is expected to improve CSX’s efficiency with cutbacks in operations.

CSX already cut 800 management-level jobs before Harrison took over in March, but Harrison said in the conference call that he doesn’t want to see a mass exodus of longtime employees.

“My MO is I like to play with the hand I’m dealt. I’ve got a good hand here,” he said.

“I am not sure that we have taken advantage of all the internal talent that we have here,” Harrison said.

“If they want to go to some other railroad, let them go. But we will not have a shortage of talent and resources to be able to operate the railroad we described,” he said.

Acquisition lifts J&J Vision Care

Johnson & Johnson’s Jacksonville-based Vision Care division is on pace to produce about $1 billion per quarter in revenue, following the recent expansion of its business with a major acquisition.

Johnson & Johnson Vision Care had been just a contact lens business but in February, it completed the $4.3 billion acquisition of Abbott Medical Optics, adding ophthalmic products for cataract surgery, laser refractive surgery and consumer eye health to the division.

As Johnson & Johnson reported first-quarter earnings last week, the company said contact lens sales rose about 5 percent.

However, total Vision Care revenue jumped 24.7 percent to $798 million, including $124 million in sales from the former Abbott businesses.

The Abbott businesses were only part of the company for about a month after the deal closed Feb. 27, so it’s easy to project second-quarter Vision Care sales will reach $1 billion.

“I think this is going to be a fantastic acquisition for us,” Chief Financial Officer Dominic Caruso said in Johnson & Johnson’s conference call.

“It’s off to a great start and quite frankly, before we acquired them in the quarter, they were doing really well with new product launches growing at a rate that was double the rate that they were growing at last year’s first quarter. So we’re very pleased. It’s off to a great start,” he said.

Johnson & Johnson’s total revenue rose 1.6 percent to $17.8 billion in the first quarter. Adjusted earnings rose by 10 cents a share to $1.83.

Regency reaches green targets

Regency Centers Corp. said Thursday it achieved its 10-year targets for reducing energy, water and greenhouse gases — five years ahead of schedule.

The Jacksonville-based shopping center developer said since 2011, it has reduced energy consumption by 21.4 percent, greenhouse gas emissions by 29.8 percent and water use by 12.9 percent.

Those reductions exceeded goals Regency had targeted for achieving by 2021.

Regency launched a sustainability program in 2008 and in 2014, it sold $250 million in “green bonds” for use in funding environmentally friendly projects.

The Wall Street Journal said Regency was the first U.S. non-bank corporation to sell green bonds.

“As we look forward, we will continually set new goals to raise the bar for excellence in environmental performance across our portfolio.” Regency President Lisa Palmer said in a news release.

Regency operates 429 retail properties across the country, mostly shopping centers anchored by supermarkets.

Moody’s sees better Fidelity outlook

Moody’s Investors Service Inc. upgraded its outlook for Jacksonville-based Fidelity National Financial Inc. from “stable” to “positive” because of the outlook for its title insurance business.

Although Fidelity invests in other businesses, title insurance is its main business and it’s the largest title insurer in the U.S. with a 33 percent market share, Moody’s said in a news release on the rating outlook.

“The company’s core title insurance franchise has posted pretax profit margins averaging 12.6 percent over the last three years, and Moody’s expects that Fidelity National’s underwriting expertise, aggressive expense oversight, and technology capabilities will support its operating margins going forward despite the cyclicality of the real estate sector,” the ratings agency said.

Fidelity’s plan to spin off its majority stake in mortgage technology firm Black Knight Financial Services Inc. will improve its balance sheet, Moody’s said, and gives the company the ability to make “large debt-financed acquisitions.”

“Near term, however, we expect the group will target smaller acquisitions, primarily of title agents and real estate brokers, as it focuses on its core title insurance business,” it said.

MV Portfolios still has no revenue

After not filing any financial reports with the Securities and Exchange Commission for more than two years, MV Portfolios Inc. filed updated reports showing no revenue in its most recent fiscal year.

Jacksonville Beach-based MVP’s annual report for the fiscal year ended June 30, 2016, said it is “engaged in the business of patent acquisition, product development, patent licensing.”

Its most significant patents relate to an online mapping system.

When we last heard from MVP in mid-2014, the company announced an agreement with Harvard University to develop technology.

The annual report said the technology involved “a dielectric elastomer innovation that has the potential to create digital smart phone images where all objects are in focus.”

However, the report also said the company decided in January 2015 to not exercise its option with Harvard to “productize” the technology.

With no revenue, MVP recorded a net loss of $3.4 million, or 8 cents a share, for the fiscal year ended last June.

It did not file updated reports for the current fiscal year.

MVP’s stock trades on the OTC market under the ticker symbol “MPVI.”

Rand acquires Jacksonville firm

Rand Worldwide last week said its IMAGINiT Technologies subsidiary acquired Jacksonville-based Advanced Technologies Solutions.

Terms of the deal were not announced.

Rand is publicly traded on the OTC Bulletin Board but says on its website that it deregistered from SEC filing requirements in 2015 and no longer files financial reports.

Advanced Technologies Solutions builds information modeling technologies and services.

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