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First American Financial (FAF) Q4 Earnings Top, Revenues Miss

Zacks Equity Research

First American Financial Corporation FAF reported fourth-quarter 2018 operating income per share of $1.27, which outperformed the Zacks Consensus Estimate by 11.4%. Moreover, the bottom line improved 33.7%.

Growth in commercial business and rising investment income largely offset the decline in refinance transactions.

Behind the Headlines

Operating revenues of $1.4 billion declined 4.3% year over year and missed the Zacks Consensus Estimate by 3.5%

Net investment income grew 40% to $63.3 million,

Closed title orders declined 1%, attributable to 42% decline in refinance orders and a 9% decline in purchase orders.

Average revenue per order increased 17%, driven by the shift in mix to higher-premium purchase and commercial transactions.

Total expense of $1.3 billion decreased 1.8% year over year, attributable to decrease in premiums retained by agents and other operating expenses.

First American Financial Corporation Price, Consensus and EPS Surprise

First American Financial Corporation Price, Consensus and EPS Surprise | First American Financial Corporation Quote

Full-Year Highlights

Operating income per share of $4.58 outpaced the Zacks Consensus Estimate of $4.39. Moreover, the bottom line surged 24.5%.

Revenues of $5.7 billion declined 0.4% over 2017.

Segment Results

Title Insurance and Services: Total revenues decreased 3% year over year to $1.3 billion.

Pretax margin contracted 180 bps.

Direct open orders declined 12.6% to $202.4 million while Direct closed orders declined 13.6% year over year.

The company expects strong performance in commercial business and growth in investment income. However, continued pressure in residential business is likely to persist.

Specialty Insurance: Total revenues decreased 8% year over year to $111.6 million.

Pretax margin was 0.7%, much lower than 9.2% in the year-ago quarter.

Financial Update

First American exited 2018 with cash and cash equivalents of $1.5 billion, up 5.8% year over year. Notes and contracts payable was $732 million, down 0.1% year over year.

First American exited 2018 with stockholders’ equity of $3.7 billion, up 7.5% year over year.

Return on equity was 13.1% in 2018.

Cash flow from operations was $793.2 million, up 25% from 2017.

Capital Deployment

The company bought back $20.9 million including $2.1 million so far in the first quarter of 2019.

Zacks Rank

First American currently has a Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other P&C Insurers

Among other companies in the insurance industry, which have already reported fourth-quarter earnings, The Travelers Companies, Inc. TRV and RLI Corp. RLI outpaced the respective Zacks Consensus Estimate while The Progressive Corporation’s PGR missed the same.

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