First American Financial Beats on Q3 Earnings & Revenues
First American Financial Corporation (FAF) reported third-quarter 2014 adjusted operating earnings of 65 cents per share, which surpassed the Zacks Consensus Estimate by 10.2% and improved 18.2% year over year.
Including net realized investment gain of 9 cents per share, net income came in at 74 cents per share in the said quarter.
The solid performance was also reflected in the share price that gained 4.4% to close at $29.68 in the last few trading sessions.
First American Financial Corporation - Earnings Surprise | FindTheBest
First American Financial’s results were driven by better performance at its title segment, which benefited from seasonal strength in the purchase and commercial markets. The specialty insurance segment also fared well owing to higher premiums earned in the home warranty as well as property and casualty business lines.
Operational Performance
First American Financial generated total revenue of $1.3 billion, down 3%from the prior-year quarter. However, results outperformed Zacks Consensus Estimate by 4.7%. Revenues decreased year over year due to a fall in direct premiums and escrow fees, agent premiums as well as information and other.
Total expenses of First American Financial declined 4.2% to $1.14 billion year over year due to a decrease in personnel costs, premiums retained by agents and other operating expenses.
Direct title orders closed per day during the quarter declined 20% largely due to a 32.3% fall in refinance orders.
Average revenue per direct order closed of First American Financial improved 20% in the reported quarter due to increase in premium purchase as well as refinance and commercial transactions.
Segment details
Title Insurance and Services: Total revenue declined 4% to $1.2 billion year over year due to a 3% fall in direct premiums and escrow fees. Average fee per order increased 8%. Agent premiums declined 10% year over year, similar to direct premiums decrease in the previous quarter. This reflected the typical reporting lag of roughly one quarter.
Information and other revenues increased 1% year over year to $160.6 million, benefiting from impact of the recent Interthinx acquisition. This was partly offset by low demand for the company’s default information products and a decline in loss mitigation.
Investment income fell 1% due to lower investment earnings.
Pre-tax income for the Title Insurance and Services segment decreased 3.2% while pre-tax margin rose 10 basis points (bps) to 10.4%, both on a year-over-year basis.
Specialty Insurance: Total revenue increased 10% from the year-ago quarter to $94.9 million, driven by higher premiums earned in the home warranty as well as property and casualty business lines.
Additionally, net realized investment gains rebounded in the quarter from net realized investment loss in the year ago quarter.
The loss ratio improved 400 bps in the current quarter due to weather-related claims and decline in the home warranty business that led pretax margin to increase 630 bps.
Financial Update
First American Financial exited the third quarter with cash and cash equivalents of $1.2 billion, up 44.2% from Dec 31, 2013.
Total assets of First American Financial of $7.4 billion increased 12.6% from the 2013 year-end level.
Total shareholders’ equity came in at nearly $2.6 billion as of Sep 30, 2014, up 5.1% from the 2013 year-end level.
Zacks Rank
First American Financial currently has a Zacks Rank #3 (Hold).
Performance of Other Property and Casualty Insurers
Among the company’s peers, ACE Limited (ACE), RLI Corporation (RLI) and The Travelers Companies Inc. (TRV) have outperformed the Zacks Consensus Estimate in third-quarter 2014.
Read the Full Research Report on RLI
Read the Full Research Report on TRV
Read the Full Research Report on ACE
Read the Full Research Report on FAF
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