While CSX Corp. Chief Executive Michael Ward said there were no surprises for Wall Street in the company's first-quarter earnings report last week, investors seemed to be disappointed. The stock dropped by 63 cents to $23.51 Wednesday after the report.
However, analysts weren't surprised, and several said the market overreacted to a couple of news items in the report.
"Based on the feedback we received from investors Tuesday night and Wednesday, we think the market took issue with the fact that CSX's liquidated damages were up roughly $31 million year-over-year," Jefferies analyst Peter Nesvold said in a research note.
Liquidated damages are money paid by customers to CSX for not meeting minimum contract obligations for freight shipments on the railroad.
"We have to take issue with the fact that people are taking issue with this benefit," Nesvold said.
He said liquidated damages are a normal part of doing business for a railroad and even if the $31 million was a special benefit, it only added about 2 cents to the company's total earnings of 45 cents a share in the first quarter.
"Feedback also leads us to believe that the market took issue with a second item: that CSX guided to EPS in 2013 that's flat to down year-over-year," Nesvold said.
However, analysts were already expecting a flat year for CSX before last week's report, as Ward pointed out.
CSX also said that it will not be able to reach its goal of reducing its operating ratio – operating expenses as a percentage of revenue – to 65 percent by 2015. It will take longer, but analysts already knew that too.
"Although the company adjusted its long-term operating ratio goal to the high-60s from the mid-60s in 2015, such a step was widely expected and telegraphed by management on the fourth-quarter 2012 earnings call," said a report by Jason Seidl of Cowen Securities.
Seidl said CSX's stock underperformance Wednesday was "unwarranted, given CSX's solid earnings results. Indeed, CSX delivered a modest all-around beat to our and Street expectations, aided by solid pricing and improved operating metrics," he said.
In addition to the earnings, CSX announced it is increasing its quarterly dividend by a penny to 15 cents a share, another positive for the stock.
Atlantic Coast Financial battle continues
It looks like it's going to be an interesting meeting when Atlantic Coast Financial Corp. shareholders gather to vote on a merger agreement with Bond Street Holdings Inc.
Former Chairman Jay Sidhu, who remains on the board of directors, sent a strongly worded letter to the board April 11 reiterating his opposition to the merger.
Current Chairman John Linfante and CEO G. Thomas Frankland responded Tuesday with an equally strongly worded letter to Sidhu expressing their view that the merger agreement is in the banking company's best interests.
"We continue to believe that the proposed merger grossly undervalues ACFC and, as a result, we expect that ACFC stockholders will not approve the transaction," Sidhu's letter said.
As an alternative to the merger, Sidhu proposed a plan to raise capital that "would have allowed ACFC to remain independent, return to profitability and allow stockholders to participate in the company's recovery and future growth," the letter said.
"While you dissented to the proposed merger, your alternative recapitalization proposal was not considered a viable alternative," the Linfante and Frankland letter said in response.
"After thorough review of your proposal by the board and its financial and legal advisors, the board concluded that it had significant execution risk that, if pursued, could put shareholders' entire investment in jeopardy," it said.
"The board is highly confident that the proposed (merger) transaction, which provides value to shareholders, is in the best interests of all shareholders, our banking organization and the communities Atlantic Coast Bank serves," it said.
The merger agreement with Bond Street calls for stockholders to get up to $5 per share, but they will only receive $3 when the deal is completed. The other $2 will be put into an escrow account that will be held for up to one year to pay any legal costs arising from stockholder claims against the company.
If shareholders approve the deal, Atlantic Coast Bank will merge into Bond Street's bank subsidiary, Fort Lauderdale-based Florida Community Bank.
Sidhu and board member Bhanu Choudhrie, who own a combined 6.6 percent of the company's stock, are opposing the deal. The Albury Investment Partnership, an Australian firm that controls 10 percent of the stock, also is opposing the deal.
The Linfante and Frankland letter points out that Albury also is a shareholder in a Pennsylvania banking firm connected to Sidhu, Customers Bancorp Inc.
While remaining on Atlantic Coast Financial's board, Sidhu is chairman and CEO of Customers. Choudhrie also is on the Customers board of directors.
Sidhu responded to that with another letter on Thursday, saying he and Choudhrie are not acting in concert with Albury.
"To date, we have had no contact with Albury's representatives in connection with Albury's decision to invest in ACFC," it said.
No date has been set for the Atlantic Coast Financial shareholders meeting.
Another new CEO for Stakool
For the second time in a month, Stakool Inc. has a new CEO.
Stakool announced Wednesday that Kevin Quirk was appointed chief executive officer. Quirk was founder of a health and wellness beverage company called White Hat Brands.
This followed the announcement in a March 20 Securities and Exchange Commission filing that CEO Peter Hellwig and the entire management team had resigned, and that Joseph Canouse was appointed as the new CEO.
Last week's news release indicates that Canouse remains chairman of the company. The release also says Stakool is based in Jacksonville, but Stakool's recent SEC filings – including an annual report filed on Tuesday – list the address of its principal executive offices in Alpharetta, Ga., where Canouse is located.
Before all the management changes, Stakool was a Jacksonville company marketing a line of natural and organic food products.
The annual report shows Stakool had total revenue of $17,435 and a net loss of $5.4 million in 2012.
Stein Mart keeps listing
Stein Mart Inc. has not filed its scheduled quarterly SEC reports since the first quarter of 2012, putting it in non-compliance with Nasdaq's stock listing requirements.
But Stein Mart said last week that Nasdaq approved its request to continue listing the stock while it works to get its filings up to date.
The Jacksonville-based fashion retailer is late with its filings, and expects to restate results for prior quarters, because of accounting issues that have to be resolved.
Johnson Rice & Co. analyst David Mann said in a research report last week that he expects the impact of the restatements to be "immaterial."
"We believe that these items are legacy in nature and immaterial to the ongoing business. In addition, we believe that the uncertainty of this accounting review has diverted attention from the company's success and creates an opportunity," Mann said.
"When financial statements are filed, we believe that the stock will react positively," he said.
Mann raised his rating on Stein Mart from "equal weight" to "overweight," and not just because of the opportunity related to the accounting issues.
"Improving sales trends have been driven by better merchandising, while management has successfully weaned off full-price couponing without a negative impact to sales trends. The company has sizable earnings power and boasts a solid balance sheet," he said.
Analyst downgrades FIS after 5-year high
After Fidelity National Information Services Inc.'s stock reached a five-year high, at least one analyst thinks it's gone far enough.
Sterne Agee analyst Greg Smith downgraded Fidelity, or FIS, from "buy" to "neutral" after the stock reached $41.02, close to his $42 price target.
"We have long held the view that FIS shares were undervalued given the company's consistent EPS growth track record, its high level of recurring revenue, and its good EPS growth visibility going forward," Smith said in his research note.
"At this point, our positive thesis on FIS has played out and we expect the shares to perform in line with the S&P 500 over the coming months. We no longer see a disconnect between fundamentals and the share price and view the shares as fairly valued at current levels," he said.
However, a day before Smith's downgrade, Robert W. Baird analyst David Koning reiterated his "outperform" rating in a research note.
"We continue to recommend FIS, as the stock trades at a mild discount to the S&P despite consistent 10 percent-plus EPS growth," Koning said.
FIS is scheduled to report its first-quarter earnings next week.
Vulcan stock jumps on upgrade
Vulcan Materials Co.'s stock jumped $3.10 to $48.69 Tuesday after another Sterne Agee analyst, Todd Vencil, upgraded his rating from "neutral" to "buy."
"Our meetings with management two weeks ago left us with the clear feeling that the longer-term outlook for the company's business is excellent, as we believe U.S. construction markets have several years of solid growth ahead of them," Vencil said in his research note.
He said management feels "better about their business than they have in five years, and they've been seeing improvement in all of the leading indicators for their business for some time. Notably, housing in some key Vulcan markets – including Arizona and Florida – is beginning to outperform the nation at large."
It was a little more than five years ago that Birmingham-based Vulcan bought Florida Rock Industries Inc. Vulcan currently runs its Southern operating group out of the former Florida Rock headquarters building in Jacksonville.
Vistakon sales down on currency impact
Vistakon, the Jacksonville-based contact lens subsidiary of Johnson & Johnson, reported lower first-quarter sales last week, due to the impact of currency fluctuations on its international sales.
On an operational basis, Johnson & Johnson said its vision care business increased sales by 1.6 percent. But after the currency impact, sales showed a 2.2 percent decline to $740 million.
New Jersey-based Johnson & Johnson's total sales rose by 8.5 percent to $17.5 billion, and adjusted earnings rose 5.1 percent to $1.44 per share in the quarter.
Dick's Wings owner lowers debt
Jacksonville-based American Restaurant Concepts Inc., the franchisor of the Dick's Wings restaurant chain, announced a settlement with Bank of America that significantly lowers its debt.
The company said the settlement reduces its outstanding debt obligations by 68 percent and reduces its annual interest expense by 86 percent. Also, American Restaurant Concepts will recognize a one-time gain of $320,000 in the first quarter in connection with the settlement.
No IPO for Firehouse
Last week in this space, I speculated that the Firehouse Subs restaurant chain might be moving toward an initial public offering after the company announced sales figures for 2012.
That prompted an email response from Firehouse of America CEO Don Fox assuring me "there's nothing in the works in regard to an IPO. Our business formula is working great, and all remains status quo."
Fox said the company announced its sales results "to create increased awareness of the Firehouse Subs brand."
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