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Jax Daily Record Monday, Jul. 29, 201312:00 PM EST

Prudential fighting 'systematically important' designation

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by: Mark Basch Contributing Writer

Its profile in Jacksonville isn't the same as it used to be, but the Prudential Insurance Co. of America is one of the most significant corporations in the city's business history.

When the New Jersey-based company opened a 22-story office tower in 1955 on Jacksonville's Southbank, it spurred a wave of development in that area and started the city on its path toward becoming a major insurance center.

We can't speak for the company, but it's reasonable to assume that Prudential officials took great pride in the company's status in Jacksonville.

That building, which sits across the street from Baptist Medical Center and is now anchored by Aetna Inc., was the tallest building in Florida when it opened, according to reports in The Florida Times-Union.

However, these days, Prudential doesn't want to be considered all that important.

The insurance company's parent, Prudential Financial Inc., has been designated by U.S. and international regulatory agencies as a "systematically important financial institution." According to published reports, Prudential is fighting that designation.

The systematically important designation is a response by global authorities to the financial crisis of 2007 and 2008.

It identifies companies that are so big that they could threaten the stability of the global economy if they collapse.

These companies could be subject to tighter regulatory requirements, which is what Prudential is trying to avoid.

Prudential said in June that it was notified by the U.S. Financial Stability Oversight Council that it was determined to be a "covered company" that could be subject to more stringent regulations.

Two weeks ago, an international body formed by the G20 nations called the Financial Stability Board, named Prudential as one of nine global insurance companies that are systematically important.

The other U.S.-based companies on the list are American International Group Inc. and MetLife Inc.

Last week, Prudential went before the U.S. council to argue that it shouldn't be on the list, becoming the first company to challenge the designation, according to The Wall Street Journal. A decision is expected within 60 days, the newspaper said.

Prudential's presence in Jacksonville has dwindled in recent years, particularly after it sold its Prudential HealthCare business to Aetna in 1998.

The company employed more than 3,000 people in Jacksonville in the 1990s but that's now down to about 900, according to JAXUSA Partnership data. However, even if its employee base is down, Prudential will always be an important part of Jacksonville's business community, whether it admits that or not.

Rayonier beats forecasts

Rayonier Inc. last week reported adjusted second-quarter earnings of 54 cents a share, 2 cents higher than last year and also 2 cents higher than the average forecast of analysts surveyed by Thomson Financial.

In the company's conference call with analysts, Chairman and CEO Paul Boynton said the earnings improvement reflected "very solid business unit operating income particularly from forest resources, due to improved timber markets."

Jacksonville-based Rayonier has previously said 2013 will be a "transition year" for its biggest business, performance fibers, as it exits the wood products business to focus more on high-purity cellulose specialty products.

Rayonier during the second quarter completed a major expansion of its mill in Jesup, Ga.

"We accomplished an important milestone with the on-time startup of the cellulose specialty expansion project at Jesup mill, and we are pleased to report that the initial production volumes and quality have exceeded expectations," Boynton said.

He said another important accomplishment was an increase in Rayonier's quarterly dividend, announced last week, from 44 cents to 49 cents a share.

"This increase reflects the confidence we have in future cash flows," Boynton said.

D.A. Davidson analyst Steven Chercover was impressed with Rayonier's performance.

"Another quarter in the books and Rayonier remains 'the REIT to beat,'" Chercover said in a research note.

"We continue to believe that Rayonier is the only timber REIT that does not necessarily need residential construction growth to substantially increase its dividend and return to shareholders," he said.

Chercover maintained his "buy" rating on Rayonier but raised his price target on the stock by $3 to $66. Rayonier rose 59 cents to $58.30 on Thursday after the earnings report.

Landstar earnings down

Landstar System Inc. last week reported lower second-quarter earnings, as expected.

The Jacksonville-based trucking company's net income fell 15 percent to $30.4 million, or 66 cents a share, with revenue down 8 percent to $679.3 million.

Landstar already had said business would be down in the quarter, mainly because of a decline in transportation of large industrial equipment on flatbed trucks.

In the company's conference call with analysts, Chairman and CEO Henry Gerkens expressed optimism that business trends will be improving.

"Although total revenue still lags that of the 2012 prior year comparable period, the trend is better, which I believe signals we have bounced off the bottom," Gerkens said.

"It is still very early in the quarter and the U.S. industrial production forecast for the balance of the year remains soft. However, I am encouraged by the recent trends in load count, the current average revenue per load amount and our new agent revenue potential," he said.

Gerkens projected third-quarter revenue of $670 million to $715 million and earnings of 67 cents to 72 cents a share.

If it hits the high end of those estimates, Landstar's results would fall about even with third-quarter 2012 revenue of $717.2 million and earnings of 71 cents.

Wells Fargo Securities analyst Anthony Gallo said Landstar's third-quarter forecast was a disappointment.

"At this point, we view Landstar as a solid operator that is short on near term growth," Gallo said in a research note.

Gallo, who maintains a "market perform" rating on Landstar's stock, said the company's growth is dependent on recruiting more agents who arrange for truck drivers to haul loads.

"Agents are the revenue source for Landstar and growth in the agent base has decelerated, in our view," he said.

"Landstar must continue to recruit and retain high-production agents in order to achieve our earnings forecasts," he said.

Analyst raises rating on FIS

Next up among Jacksonville companies reporting earnings is Fidelity National Information Services Inc. As analysts wait for FIS' report due Tuesday morning, they seem to be more optimistic about its performance.

Credit Suisse analyst Georgios Mihalos last week raised his rating on FIS from "underperform" to "neutral."

"Our underperform rating reflected our view that the core bank processors, FIS and Fiserv, would remain growth-challenged in an environment of constrained bank IT spend and little/no de novo bank growth," Mihalos said in his research note.

"While FIS's organic revenue growth since 2007 has fallen short of the company's long-term aspirations of 6 to 9 percent, we believe the company is well positioned to sustain its current growth rate of 5 percent and boasts a more attractive end market footprint relative to competitor Fiserv," he said.

A.M. Best raises FNF ratings

Insurance ratings agency A.M. Best Co. last week said it raised its ratings on Jacksonville-based Fidelity National Financial Inc.'s title insurance businesses from "stable" to "positive."

"The positive outlook reflects Fidelity National Financial Group's improved risk-adjusted capitalization, driven by improved underwriting results and lower underwriting leverage measures, as well as its strong market profile as the largest title insurance group in the United States, having a market share of approximately 34 percent as of year-end 2012," A.M. Best said in a news release.

"In addition, the group achieved surplus growth in excess of 25 percent, in total, over the past five years, despite the depressed housing and real estate market conditions, mainly due to aggressive expense management initiatives," it said.

McKesson happy with PSS

McKesson Corp. CEO John Hammergren seems positively giddy about his company's acquisition of Jacksonville-based PSS World Medical Inc. earlier this year.

During McKesson's quarterly conference call last week, Hammergren said the PSS operations are meeting or exceeding expectations after the first full quarter since the deal was completed.

Hammergren also gushed about the "enthusiasm and spirit" of the PSS sales force that has now joined McKesson.

"This was an acquisition anchored in bringing together the best of two great organizations, and I'm delighted with the progress and the early results of the combined business and look forward to the opportunities that lie ahead," he said.

Overall, McKesson reported adjusted earnings rose 34 percent in the first-quarter ended June 30 to $2.07 a share.

Northrop raises forecast

While the defense contractor faces the impact of U.S. budget cuts in the future, Northrop Grumman Corp. last week reported higher-than-expected second-quarter earnings and increased its forecast for the full year.

Northrop, which is expanding its facility in St. Augustine, said second-quarter earnings rose 2 percent to $488 million, or $2.05 a share. That was well above the average analysts' forecast of $1.71, according to Thomson.

Northrop also increased its earnings forecast for the full year from between $6.85 and $7.15 a share to between $7.60 and $7.80.

The company's stock rose as much as $4.23 to a 52-week high of $92.99 Wednesday after the report.

Gannett TV revenue up

Gannett Co. Inc.'s television stations, including WTLV TV-12 and WJXX TV-25 in Jacksonville, increased second-quarter revenue despite a decline in political ad spending. However, the media company said third-quarter revenue comparisons won't be as favorable.

Gannett last week said core advertising revenue in its broadcasting division rose 1.5 percent and would have risen 9.1 percent, excluding the impact of political ads.

In the third quarter of 2012, Gannett benefited not only from increased political ads as activity heated up before the fall election, but also from ads related to the Summer Olympics on its NBC-affiliated stations, including WTLV.

That makes it pretty much impossible for this year's third quarter to match last year. Gannett expects its third-quarter television revenue this year to be down by a mid-teen percentage from 2012. Excluding political and Olympic-related spending, it expects revenue to be up by a mid-teen percentage.

Overall, Gannett reported second-quarter earnings rose by 2 cents per share to 58 cents.

Flowers completes Hostess deal

Flowers Foods Inc. last week completed its acquisition of 20 bakeries and five bread brands from Hostess Brands Inc., but the company still isn't talking about its plans for the bakeries, including one in Jacksonville.

Thomasville, Ga.-based Flowers bought Hostess' bread business after submitting the winning bid in a U.S. Bankruptcy Court auction earlier this year.

Flowers already operates one bread bakery in Jacksonville and hasn't said if it plans to operate a second local facility.

The Hostess bakery in North Jacksonville employed 128 people when it shut down last November as Hostess went out of business.

Flowers did not response to voice and email messages last week.

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