Fidelity National Beats, Raises Dividend - Analyst Blog

Fidelity National Financial, Inc. (FNF) reported third-quarter 2013 adjusted earnings of 50 cents per share, surpassing the Zacks Consensus Estimate by a penny.  However, earnings reduced 23% from the year-ago quarter.

Including a charge of 7 cents per share stemming from charge associated with one-time costs of debt extinguishment at Ceridian and write-off of a deferred tax asset and expenses related to a definitive agreement to acquire Lender Processing Services, Inc. (LPS), net income of Fidelity National came in at 43 cents per share, significantly down 58.6% year over year.

Operational Update

Revenues of Fidelity National grossed $2.2 billion, surpassing the Zacks Consensus Estimate by 7.2% and also increasing 6.9% year over year. The improvement was fueled by higher title premiums, increase in Restaurant as well as Remy revenues.

Total expenses escalated 15.8% year over year to $2 billion, attributable to increase in personnel costs, higher cost of Restaurant revenues, cost of Remy revenues, increase in agent commissions and higher interest expenses.

Purchase orders opened and closed in the reported quarter increased 10% and 15% year over year, respectively.

Segment Update

Fidelity National Title Group

Revenues were $1.5 billion, up 6% year over year.

Operating pre-tax earnings increased 4.3% from the year-ago quarter to $218 million. However, adjusted pre-tax title margin narrowed 20 basis points (bps) year over year to 14.2%.

Direct Orders Opened declined nearly 32.9% from the comparable prior-year period to 474,000. Direct Orders Closed declined 14.6% year over year to 410,000.

Commercial title revenues rose 25% year over year to $120 million, attributable to 22% improvement in commercial fee per file and 3% rise in closed orders.

Restaurant Group

Operating revenues improved 12.7% year over year to $336 million.

Adjusted Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) were $14 million in the quarter, surging 40% year over year.

Adjusted EBITDA margin expanded 80 bps to 4.2%.

Remy

Operating revenues totaled $266 million in the third quarter, surging 86% year over year.

Adjusted EBITDA jumped 61.9% from the year-ago quarter to $34 million while adjusted EBITDA margin deteriorated 200 bps to12.7%.

Financial Update

Fidelity National exited the quarter with cash and investment portfolio of $5.25 billion, up from $5.18 billion at 2012-end.

Notes payable of Fidelity National remained almost flat with the 2012-end level of $1.3 billion.

Cash flow from operations declined 29.3% year over year to $130 million.

Dividend Update

On Oct 23, the board of directors of Fidelity National approved a new quarterly cash dividend of 18 cents per share which will be paid on Dec 30 to the shareholders of record as on Dec 16, 2013. The new quarterly dividend reflects 12.5% increase from the previously paid quarterly dividend of 16 cents per share.

Acquisition Update

On May 28, Fidelity National inked a definitive agreement to acquire Lender Processing for $2.9 biilion. Fidelity was to pay 50% of the purchase consideration in cash and the remaining 50% in shares of FNF common stock.

In June, Fidelity National adjusted the consideration mix, increasing the cash component by nearly $500 and reducing the stock component by an equal amount.

Recently, on Oct 25, Fidelity National further adjusted the consideration mix, increasing the cash component by nearly $511 million and thereby decreasing the stock component by an equal amount. As a result, the company will now pay 82% of the consideration in cash and the remaining 18% will be paid in the form of Fidelity National's common stock. However, the consideration is subject to further adjustments.   

Performance of Other Title Insurers

OneBeacon Insurance Group Ltd. (OB) reported its third-quarter 2013 operating net income of 29 cents per share, significantly beating the Zacks Consensus Estimate of 22 cents. The results also surged 52.6% year over year.

Old Republic International Corp. (ORI) reported its third-quarter 2013 operating net income of 35 cents per share, substantially surpassing both the Zacks Consensus Estimate as well as the year-ago quarter results.

Zacks Rank

Fidelity Financial currently holds a Zacks Rank #2 (Buy).