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Jax Daily Record Monday, Feb. 16, 201512:00 PM EST

Web.com expects to begin growing next quarter

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by: Mark Basch Contributing Writer

After several quarters of disappointing earnings, Web.com Group Inc. told analysts last week that it expects business to begin growing again in the second quarter this year.

The Jacksonville-based company, which provides website development services for businesses, reported fourth-quarter adjusted earnings of 57 cents a share, in line with its expectations but down from 59 cents in the fourth quarter of 2014.

During the company’s conference call with analysts, CEO David Brown said he is confident Web.com is taking the steps needed to improve growth, but the results won’t be visible immediately.

“It’s important to recognize that it takes time for changes in the business to fully flow through our financial results given our subscription revenue model,” he said.

Brown said he expects revenue to bottom out in the first quarter this year before it begins growing again in the second quarter. Web.com expects revenue growth to be in a “mid-single-digit” percentage range by the end of this year.

Web.com forecast 2015 earnings of $2.28 a share, to $2.38, lower than the average forecast of $2.44 by analysts surveyed by Thomson Financial.

“Web.com and its management team have been through challenging cycles before and we’ve demonstrated an ability to make adjustments to the business as conditions change in order to drive improved operational and financial performance,” Brown said.

“This has included diversifying the business over time to include additional products and channels to provide incremental opportunities for growth. We intend to do the same through this cycle.”

Piper Jaffray analyst Gene Munster said in a research note that Web.com seems to be on the right track.

“Despite the guidance below the Street (first time the company gave 2015 guidance), the takeaway from the quarter is that Web is making steady progress to return to growth and is implementing cost-controlling measures to improve profitability,” Munster said.

“The company is not yet out of the weeds, but we are encouraged by the progress displayed in both the cost-control side of the business, as well as driving revenue above expectations,” he said.

Before reporting earnings last week, Web.com also announced an agreement with its largest shareholder, Okumus Fund Management, to put two new directors on its board.

Okumus, which owns 14.8 percent of Web.com’s stock, began building up its stake last year and had not indicated any disagreement with management in its Securities and Exchange Commission filings.

“We are pleased to have been able to work constructively with Web.com and commend Web.com’s board and management team for their thoughtful engagement over the past several months,” fund President Ahmet Okumus said in a news release. He said Web.com has “excellent prospects.”

During the conference call, Brown did not give any more insight into the agreement with Okumus, other than to say he expects the new board members to add value to the company. In addition to the two directors supported by Okumus, Web.com in December also added Jacksonville University President Tim Cost to the board.

Calmer reaction to Rayonier earnings

After shaking up investors by announcing a major shift in strategy with its third-quarter earnings report, Rayonier Inc.’s yearend report last week produced a much calmer reaction.

The timber and real estate company’s adjusted fourth-quarter earnings of $11 million, or 9 cents a share, were about 65 percent lower than the previous year but equal to the average forecast of analysts, according to Thomson Financial.

After spinning off its performance fibers business into a separate company called Rayonier Advanced Materials Inc., Rayonier Inc. in November said it was reassessing the value of its timber holdings and that it expects lower future cash flows.

Rayonier is forecasting earnings before interest, taxes depreciation and amortization to be between $190 million and $215 million this year, down from $235 million in 2014. That wasn’t a big surprise to analysts, who were forecasting between $204 million and $214 million, according to Thomson.

Rayonier’s stock fell by 38 cents to $29.17 Thursday after the earnings report.

In the company’s conference call with analysts, CEO David Nunes said timber markets are improving in the Southeastern U.S., but Rayonier is dealing with price declines from its other timberland holdings in the Pacific Northwest and New Zealand

“As we look forward through 2015, we expect further improvement in Southern pine prices as the housing market continues to slowly recover. But we also expect some headwinds in the China log export markets,” Nunes said. That affects demand for the Northwest and New Zealand timber.

“In our real estate business we are excited about our shift in strategy to place more emphasis on adding value to selected properties and less on sales of unimproved timberlands,” Nunes said.

That includes a 2,900-acre development project in Nassau County that is beginning with an elementary school scheduled to open in 2017.

D.A. Davidson analyst Steven Chercover had upgraded his rating on Rayonier’s stock to “buy” in November when the stock fell after the previous earnings report. However, the stock had risen 10.5 percent since then, so he downgraded it back to “neutral” on Friday, only because of the valuation. He supports Rayonier’s new management.

“It probably feels like an eternity for Rayonier’s new CEO David Nunes (and even newer CFO Mark McHugh) since he took over the reins, took stock of his timber inventories, and watched his stock price plummet when the results were revealed,” Chercover said in a research note.

“The work of reestablishing Rayonier’s reputation and restocking its timberlands is still in its early days — fortunately we believe the team has the energy and the time to complete the task,” he said.

Regency happy with last three years

Regency Centers Corp.’s funds from operations growth of 7 percent in 2014 may not seem exciting, but Chairman and CEO Hap Stein said the Jacksonville-based shopping center developer’s results show consistent growth over the last three years.

During Regency’s conference call with analysts last week, Stein said Regency has increased occupancy of its retail properties by more than 2 percentage points to 95.8 percent over the three-year period. He also said rents have grown by 12 percent and net operating income at properties owned for at least a year has grown by 4 percent for three straight years.

“This was driven by the combination of our high-quality portfolio, historically low levels of new supply and robust tenant demand across our markets from anchors, small-shop retailers and restaurants,” Stein said.

Regency, which develops and operates shopping centers mainly anchored by supermarkets, has 322 retail properties across the U.S. with 43.1 million square feet of space.

The company last week reported its core funds from operations rose by 5 cents a share in the fourth quarter to 71 cents and by 19 cents a share for the full year to $2.82.

Funds from operations are basically earnings excluding depreciation and amortization expenses and are considered the key metric for evaluating real estate companies.

Stein said Regency’s core funds from operations growth has been 6 percent a year over the last three years, and the company has produced shareholder returns approaching 90 percent over that period.

Regency is projecting 2015 funds from operations to be between $2.91 and $2.97 a share.

“Overall, from a business standpoint, operations were strong in the fourth quarter,” SunTrust Robinson Humphrey analyst Ki Bin Kim said in a research note.

Kim said Regency’s net operating income growth has been better than its peers, but that is somewhat misleading because it includes growth from redevelopment projects. However, that’s not a bad thing for Regency

“Now, we are definitely NOT faulting Regency for redevelopment. This is actually why a company should focus on smartly improving assets, to unlock value and improve growth, but we think investors should analyze with caution,” Kim said.

Kim maintained a “neutral” rating on Regency’s stock but Raymond James analysts Collin Mings and Paul Puryear maintained an “outperform” rating after the earnings report.

Foley’s NHL Las Vegas ticket drive starts strong

Fidelity National Financial Inc. Chairman Bill Foley last week formally launched his ticket drive to bring a National Hockey League team to Las Vegas, and it apparently got off to a great start.

Foley is partnering with the Maloof family, former owners of the NBA’s Sacramento Kings, to try to bring a hockey team to a $375 million arena under construction near the Las Vegas strip.

NHL Commissioner Gary Bett-man gave Foley permission in December to launch a ticket drive to gauge support for a team.

The ticket drive started Tuesday afternoon and by late Wednesday, the group received deposits for 5,000 tickets, half of its goal of 10,000, according to the Las Vegas Review-Journal.

Bettman has not promised a team for Las Vegas even if Foley and his group reach their goal, but Bettman did attend a kickoff event for the ticket sale Tuesday, the newspaper reported.

Fans are being asked to pay a refundable deposit ranging from $150 to $900, equal to 10 percent of the cost of a season ticket.

While the team isn’t a sure thing, the newspaper also said Foley and his wife have “signed paperwork” to buy a house in the affluent Summerlin community in Las Vegas.

Foley already has homes in California and Montana, in addition to Jacksonville. While he has several business interests outside of Jacksonville, Foley told the Daily Record in December that he considers Jacksonville to be his primary residence.

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