Fidelity National Reports Strong 2Q

Zacks

Fidelity National Financial, Inc. (FNF) reported second quarter adjusted earnings of 52 cents per share, striding ahead of the Zacks Consensus Estimate of 47 cents and the year-ago quarter earnings of 36 cents per share.

The company had a pre-tax gain of $61.5 million from the consolidations of O'Charley's and ABRH, partially neutralized by claims recoupment impairment charge of $10.8 million incurred in the title business, together with an impairment charge of $5.9 million related to the divestment of Cascade Timberlands. Including after-tax impact from these one-time items of $28.5 million or 13 cents per share, the company reported net income of 65 cents.

Operational Update                    

During the quarter under review, total revenue of Fidelity National increased to $1.74 billion climbing 41.5% from $1.23 billion in the year-ago quarter, also outperforming the Zacks Consensus Estimate of $1.51 billion. The increase in revenue was primarily attributable to the company’s decision to report the restaurant segment separately. The revenue was further aided by the acquisition of O'Charley's in April that is expected to contribute approximately $800 million to the company’s total annual revenue.

The total expenses for the second quarter amounted to $1.51 billion increasing 34.6% over the prior year quarter primarily due to increased personnel costs, operating expenses and other acquisition costs.

The net income for the quarter amounted to stood at $147.0 million, compared with $80.0 million in the prior-year quarter.

Pre-tax title margin for the reported quarter surged 280 basis points over the prior-year quarter to 14.4%. Open order for the company also increased over the prior year quarter by 30% to 667,500 in the second quarter which is equal to 10,400 open orders per day.

Segment Details

Fidelity National Title Group ("FNT") reported total revenue of $1.40 billion increasing 14.8% over the prior-year quarter. Its total expenses increased 12.2% to $1.21 billion during the second quarter. The pre-tax margin of 13.7% reflects an improvement of 190 basis points over the prior-year quarter.

Starting this quarter, the company is separately reporting for Restaurant Group. The segment reported total revenue of $324.3 million. Expenses amounted to $261.6 million for the second quarter with a pretax margin of 19.3%.

The company’s Corporate and Other reported total revenue of $11.0 million declining slightly by 6.8% over the prior-year quarter. However, total expenses decreased 7.6% to $42.8 million during the second quarter of 2012.

Financial Position

Cash flow from operating activities generated by Fidelity National equaled $237.5 million in the reported quarter, substantially increasing from $53.4 million in the prior-year quarter.

Total assets of the company at the end of the quarter were $8.47 billion, up 7.8% from $7.86 billion as of December 31, 2011, while shareholders’ equity was $4.05 billion, reflecting a 10.9% increase from $3.66 billion as of December 31, 2011. Book value per share also rose 9.1% to $18.07 from $16.57 as on December 31, 2011.

Our Take

The company has a sound financial position that will cushion its recent acquisition undertakings like the recently announced decision to acquire J. Alexander's for $72 million. While the risk of integration remains, the overall financial position of Fidelity National looks promising and is slated to boost shareholders worth in the near term.

The company competes closely with First American Financial Corporation (FAF), which is scheduled to release its second quarter earnings before the bell on July 26. The Zacks Consensus Estimate for the company is pegged at 43 cents per share representing an estimated year-over-year increase of 53.6%. 

Fidelity National carries a Zacks #2 Rank, implying a short-term Buy rating. 

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