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Basch Report
Jax Daily Record Monday, Oct. 23, 201707:00 AM EST

Who will succeed Hunter Harrison at CSX Corp? PNC opening regional office

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CEO says question “is not something we’re ignoring.”
by: Mark Basch Contributing Writer

Before Hunter Harrison began lobbying for the job last winter, CSX Corp.’s board was preparing to announce succession plans for the pending retirement of incumbent CEO Michael Ward.

But before a successor could be revealed, Harrison was brought in as chief executive in March and all previous plans were thrown out the window.

Harrison’s contract runs to 2021, and while that seems like a long time away, some investors already are wondering what will happen after Harrison’s tenure.

During the company’s quarterly conference call last week, Susquehanna Financial analyst Bascome Majors asked Harrison about succession planning, since there is no obvious heir apparent.

“Well, I can tell you that’s something that the board is very sensitive to ... and not something we’re ignoring,” Harrison said.

“I’m hopeful that maybe we could give you more insight at the analysts’ meeting but I’m not sure of that.”

CSX scheduled a two-day analyst meeting beginning Sunday in Palm Beach, where Harrison lives.

“We share your concerns. I share your concerns both as CEO and a shareholder. And it’s something that, until we receive an answer, we will stay on top of,” Harrison said.

Under Ward, Oscar Munoz had been heir apparent to be the next chief executive of Jacksonville-based CSX.

But Munoz left the railroad company to become CEO of United Continental Holdings Inc. in September 2015.

Of course, Munoz could be regretting that now as problems pile up at the airline. United’s stock dropped another 12 percent Thursday because of a disappointing 2018 forecast.

When Munoz left CSX, Ward said any of three top CSX officials could be in line to succeed him: then-President Clarence Gooden and Executive Vice Presidents Cindy Sanborn and Fredrik Eliasson.

Gooden retired in March along with Ward when Harrison came in. Sanborn and Eliasson still are at the company as executive vice presidents, but the company has three more EVPs: Frank Lonegro, Mark Wallace and Ellen Fitzsimmons.

Because of the upcoming analyst conference, CSX didn’t have much news to offer in its third-quarter earnings report, and there was little market reaction. The company limited analysts to one question each during the conference call.

“Recent news has largely been good news for CSX shareholders, with improving service metrics (including no real negative outcomes from last week’s Surface Transportation Board hearing) and a far more consistent message on today’s earnings call (recall second quarter’s two-plus hour marathon),” Majors said in his research note Tuesday after the earnings report.

Majors said long-term investors will be more interested in management’s presentation to the analysts next week.

“To earn those investors’ continued support, in our view management’s commentary toward the board’s succession planning and expectations for free cash flow/capital deployment will be key,” he said.

J&J expanding Vision Care

Johnson & Johnson greatly expanded its Jacksonville-based vision care business with a big acquisition in February, and the growth continued during the third quarter with two more acquisitions.

Johnson & Johnson Vision Care had been only a contact lens business, but it expanded in February by acquiring Abbott Medical Optics, which added ophthalmic products for cataract surgery, laser refractive surgery and consumer eye health.

In September, Johnson & Johnson completed two more deals for the vision care business, acquiring Sightbox Inc., an e-commerce company that provides subscription vision care services, and TearScience, which provides technologies that address meibomian gland disease, the leading cause of dry eyes.

Terms of those two acquisitions were not announced. Johnson & Johnson paid $4.3 billion for Abbott.

Johnson & Johnson last week said contact lens sales rose 8.3 percent in the third quarter to $800 million. Total sales in the vision care division reached $1.09 billion after the acquisitions.

Johnson & Johnson’s total sales in the third quarter rose 10.3 percent to $19.7 billion. Adjusted earnings of $1.90 a share were 22 cents higher than last year and 10 cents higher than the average analysts’ forecast, according to Yahoo Finance.

Johnson & Johnson’s stock rose $4.67 to $140.79 Tuesday after the earnings report and reached a record high of $143.62 Friday.

PNC opening regional office

PNC Bank does not have any branches in the Jacksonville metropolitan area, but the bank last week announced it is establishing a regional headquarters office in Jacksonville.

The office will be the home base of the bank’s “Port Cities” region which includes Savannah, Georgia, and Charleston, South Carolina.

PNC has employees in the region engaged in corporate banking, commercial banking, equipment finance and consumer lending.

“PNC has for some time served corporate and commercial clients in the region through our contiguous markets in Florida, Georgia and the Carolinas. This expansion represents a deeper investment of our resources to build our presence,” Lou Cestello, head of PNC regional markets, said in a news release.

Brian Bucher, a 32-year veteran of PNC, will be the regional president in Jacksonville.

The company is not yet saying how many employees will staff the regional office.

The bank’s holding company, PNC Financial Services Group Inc., is headquartered in Pittsburgh while its PNC Bank subsidiary is headquartered in Wilmington, Delaware.

The bank reported assets of $375 billion as of Sept. 30.

PNC has 187 bank branches in Florida, according to Federal Deposit Insurance Corp. data. The nearest to Jacksonville are four offices in Flagler County.

Ameris getting back to M&A

After putting deals on hold this year as it resolved regulatory issues, Ameris Bancorp expects to be back in the merger and acquisition business before the end of 2017.

Bank regulators last December issued a consent order against Ameris for violations of the Bank Secrecy Act, a federal law requiring financial institutions to help the government prevent money laundering.

Regulators told the bank it couldn’t pursue more acquisitions until it regained compliance.

Ameris blamed the problem on a software glitch that it expected to be fixed by midyear, but the compliance process did not wrap up until late summer, CEO Edwin Hortman said Thursday during the company’s quarterly conference call.

“While we’ve not received the final report, I’m very pleased with the preliminary report and remain confident that we will be able to announce an M&A transaction prior to year-end,” he said.

Hortmann said Ameris continued to explore possible acquisition targets as it went through the compliance process.

“There are several deals we’re working on that have the kind of economics our shareholders expect: solid EPS accretion and minimal to no book value dilution. We will continue to be disciplined in our approach, but believe there remain opportunities in the short term for Ameris Bank in this area,” he said.

Ameris reported adjusted third-quarter earnings of 63 cents a share, a penny higher than the previous year.

The adjusted earnings do not include $4.7 million in charges related to the bank’s compliance issues, and $410,000 in expenses related to the impact of Hurricane Irma. That reduced final net income for the quarter to $20.2 million, or 54 cents a share.

Hortman said the Irma expenses mainly consisted of waived service charges and late fees because of storm-related closings.

Ameris is officially headquartered in Moultrie, Georgia, but its executive office is in Jacksonville.

Drone Aviation gets $800,000 order

Drone Aviation Holding Corp. last week said it received an order exceeding $800,000 for its Winch Aerostat Small Platform (WASP), a tactical helium-filled balloon system.

The Jacksonville-based company reported revenue of just $381,529 in the first half of this year. Drone Aviation said it expects to supply the WASP to the customer in the fourth quarter.

The contract announcement came a few days after The Associated Press reported the U.S. Border Patrol recently completed a 30-day trial of the WASP.

Drone Aviation did not announce the identity, but said it was an existing U.S. Department of Defense customer.

“We are pleased to have received this repeat order from our customer, and it is especially notable because it comes as a direct result of the WASP’s demonstrated capabilities in the field and the positive feedback reported by users,” Vice President of Sales Bruce Hardy said in a news release.

ParkerVision gets more capital

ParkerVision Inc. has generated little revenue in recent years, but it continues to attract new capital.

The Jacksonville-based developer of wireless technology last week said Aspire Capital Fund agreed to buy 312,500 shares of ParkerVision stock at $1.60 each, and the Chicago-based fund plans to buy up to $19.5 million in additional shares.

The new capital comes as ParkerVision recently began selling a consumer product called Milo, which is designed to enhance in-home Wi-Fi performance.

ParkerVision began taking orders online in August at milowifi.com, and also is selling the product through Amazon.com. It has not yet reported initial sales figures for Milo.

Fortegra raises $125M in capital

Fortegra Financial Corp. last week said it raised $125 million in capital by issuing subordinated notes.

The Jacksonville-based insurance services company will use the proceeds to pay off existing debt.

Fortegra said the capital will strengthen its balance sheet and improve its position with industry rating agencies.

Fortegra was a publicly traded company before being acquired by Tiptree Financial Inc. for $218 million in 2014.
 

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