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Basch Report
Jax Daily Record Monday, Feb. 19, 201806:30 AM EST

Web.com forecast for 2018 hits stock

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Company downgraded and analyst calls outlook disappointing.
by: Mark Basch Contributing Writer

Web.com Group Inc. reported fourth-quarter results basically in line with analysts’ forecasts. However, investors didn’t like the company’s projections for 2018.

The company’s stock dropped as much as $4.40 to $17.20 on Feb. 9, its lowest level in 14 months, after the earnings report.

B. Riley FBR analyst Sameet Sinha said in a research note after the report that Web.com’s forecast for 2018 was disappointing.

“We are downgrading Web.com from Buy to Neutral as fiscal year ’18 outlook implies 0.5 percent year-to-year revenue growth while our thesis called for mid-single-digit growth as well as incremental investments,” wrote Sinha, the only analyst who changed his rating on the company after the report.

Web.com doesn’t provide projections on net income. But Sinha said the company’s first-quarter guidance of $185.5 million in revenue and $41.5 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was lower than his estimate of $188.2 million in revenue and $49.3 million in EBITDA. 

He also said the consensus forecast of analysts called for revenue of $192.4 million and EBITDA of $49.8 million.

During Web.com’s conference call with analysts, CEO David Brown spotlighted the company’s plans to offer additional services to its business clients, beyond its basic service of helping them develop websites.

Sinha said he is waiting for results from that strategy.

“Given the significant transformation of the product line, there just isn’t much in terms of fundamentals to show for. We wait on the sidelines until we see incremental signs of a growth inflection,” he said.

Regency reports strong occupancy at its properties

At a time when retail chains are closing stores nationwide, Jacksonville-based shopping center developer Regency Centers Corp. reported continued strong occupancy at its properties.

The company’s same-property portfolio (properties owned and operated for more than one year) was 96.3 percent leased at year-end, and those properties grew net operating income by 3.6 percent last year.

Hap Stein

“This places Regency at the top of the shopping center sector for both of these metrics,” CEO Hap Stein said in the company’s conference call with analysts.

“Even though store closures accelerated and expansions of some retailers were more deliberate, we are continuing to experience healthy demand from successful operators,” he said.

Regency operated 426 properties as of Dec. 31, mostly shopping centers anchored by supermarkets.

Regency reported fourth-quarter core funds from operations of 92 cents a share, 6 cents higher than the previous year.

Funds from operations basically are earnings excluding noncash charges such as depreciation and amortization expenses, and are a key indicator of a real estate investment trust’s performance.

Separately last week, Regency said the company’s largest shareholder will no longer be represented on its board of directors.

Chaim Katzman, who became vice chairman of Regency’s board last year, resigned because of the time commitment needed for his new role as CEO of Gazit-Globe Ltd.

Gazit-Globe is an Israeli-based shopping center developer that was the largest stockholder of Equity One Inc., and it became the largest Regency shareholder after Regency acquired Equity One last year.

Katzman is the founder and controlling shareholder of Gazit-Globe and had been serving as its chairman. He took over as CEO on Jan. 31 when the previous chief executive resigned.

Gazit-Globe controls 10.4 percent of Regency’s stock, according to its most recent Securities and Exchange Commission filing.

The merger agreement with Equity One required Regency to nominate Katzman to its board and to allow Gazit-Globe to appoint a replacement if Katzman left the board. 

But Regency said in another SEC filing that Gazit-Globe is not designating a replacement to fill Katzman’s seat at this time.

CSX raises dividend to 22 cents a share

CSX Corp. last week announced it is raising its quarterly cash dividend by 2 cents to 22 cents per share, and also increasing its share repurchase program from $1.5 billion to $5 billion.

In a news release, CEO James Foote said the moves demonstrate the Jacksonville-based railroad company’s board’s “confidence in the quality of our franchise and our long-term prospects.”

Moody’s Investors Service said in a report that the increase in the share repurchase program “signals a more aggressive financial policy” for CSX.

“Moody’s considers this level of financial leverage very elevated, in particular given the company’s still sizeable exposure to domestic and export coal of approximately 18.5 percent of revenues, and the concerns of the Surface Transportation Board about lingering service issues that emanated from the implementation of CSX’s new operating plan,” the ratings agency said in a news release.

“In addition, the company will have limited room to contend with any adverse developments in freight demand, freight rates, operational issues or any other challenges. Nevertheless, Moody’s believes that the incremental risk associated with the increase in debt is mitigated by the expected material increase in cash flows relative to CSX’s debt levels.”

THL reduces stake in Black Knight

Black Knight Inc.’s largest shareholder, Thomas H. Lee Partners L.P., last week sold 8 million shares of the stock at $46.70 each.

This was Thomas H. Lee’s second stock sale since Fidelity National Financial Inc. spun off its majority stake in Black Knight in October. The investment firm sold 7 million shares in November.

The latest sale leaves Thomas H. Lee with about 20 million shares of Jacksonville-based Black Knight, or about 13 percent of the stock. Its stake was 23 percent before the first sale in November.

Nebraska company buying travel nurse staffing service PPR

Omaha-based Medical Solutions announced an agreement to buy PPR, a Jacksonville Beach-based provider of travel nurse staffing services.

Terms of the deal were not disclosed.

PPR, which was founded in 1996, will continue operating under its own brand and will keep its offices in Jacksonville and Tampa, Medical Solutions said.

Medical Solutions says it is one of the largest travel nurse staffing agencies in the U.S., with additional locations in San Diego, Cincinnati, Denver and Tupelo, Mississippi.

BAE Systems bringing more work to Jacksonville

BAE Systems last week said it received a contract of at least $9.6 million from the U.S. Navy to modernize the guided-missile cruiser USS Philippine Sea.

The contract includes options that could bring the total value to $72 million.

Work on the initial contract will begin in April and be completed in February 2019 at BAE’s two Jacksonville shipyards on Heckscher Drive and at Mayport Naval Station.

The company employs about 540 people in Jacksonville.

Drone Aviation completes Army contract

Jacksonville-based Drone Aviation Holding Corp. last week said it delivered an aerostat system to the U.S. Army under a contract that exceeds $800,000.

Drone Aviation reported total revenue of $474,634 in the first nine months of 2017.

The system is called the Winch Aerostat Small Platform, or WASP, which Drone Aviation says “delivers multi-mission capability on the edge of the battlefield featuring the simultaneous use of secure communications and advanced ISR (Intelligence, Surveillance and Reconnaissance) payloads enabled by the company’s proprietary tether system.”

Acquisition doubles GEE Group revenue

GEE Group Inc. reported revenue more than doubled in the first quarter ended Dec. 31 because of an acquisition last year.

However, amortization and interest expenses related to its acquisitions resulted in a net loss for the quarter.

First-quarter revenue for the Naperville, Illinois-based staffing company reached $45.2 million, up from $21 million the previous year.

Operating income tripled in the quarter to $1.48 million but after interest and amortization expenses, GEE Group had a net loss of $1.8 million, or 18 cents a share, in the quarter.

“The company continues to benefit from a tight labor market with a continued low unemployment rate for IT, accounting, finance, engineering and other highly skilled professional workers. Also, the trend toward increased use of the flexible on-demand work force in corporate America coupled with the anticipated accelerated growth in U.S. GDP creates a favorable backdrop and macro environment for our business and the staffing industry,” CEO Derek Dewan said in a news release.

Although the company is headquartered near Chicago, Dewan works from an office in Jacksonville.

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