CORRECTING AND REPLACING – Stewart Reports Results for the Second Quarter 2014
PR Newswire Association LLC |
Selected Financial Information
Summary results of operations are as follows (dollars in millions, except per share amounts):
Second Quarter |
Six Months |
|||
2014 |
2013 |
2014 |
2013 |
|
Total revenues |
|
|
|
|
Pretax earnings (loss) before noncontrolling interests (a) |
11.5 |
48.9 |
(7.1) |
56.0 |
Income tax expense (benefit) |
2.8 |
19.0 |
(5.2) |
21.4 |
Net earnings (loss) attributable to Stewart |
6.3 |
26.9 |
(5.8) |
30.1 |
Net earnings (loss) per diluted share attributable to Stewart |
0.27 |
1.09 |
(0.26) |
1.25 |
a. |
Pretax (loss) earnings before noncontrolling interests for the first six months of 2014 included |
Compared to the second quarter 2013, title revenues decreased 14.3 percent in the second quarter 2014. Revenues for the second quarter were negatively impacted by softer market conditions as the number of title orders opened declined 17 percent compared to second quarter 2013. Revenues from direct operations for the second quarter 2014 decreased 4.3 percent compared to the same quarter last year but increased 35.5 percent sequentially from the first quarter 2014. Title orders closed declined 20 percent compared to 2013 largely due to the decline in refinancing orders. We closed 70 percent of title orders opened in the second quarter 2014 compared to 73 percent in second quarter 2013.
Mortgage services revenues for the second quarter 2014, including revenues from acquisitions closed during the quarter, decreased 3.6 percent compared to the second quarter of 2013.
"While pleased with several internal developments and ongoing initiatives in the second quarter 2014, the overall market continued the themes observed over the last three quarters in the housing industry," said
For the first six months of 2014, net loss attributable to Stewart was
Compared to the first six months of 2013, title revenues decreased 10.7 percent in the first six months of 2014, while mortgage services revenues decreased 16.4 percent. Revenues for the first six months of 2014 were negatively impacted by softer market conditions as the number of title orders opened declined 18.4 percent compared to first six months of 2013. We closed 67 percent of title orders opened compared to 72 percent in the first six months of 2013. Mortgage services revenues declined as the overall improvement in the housing market during 2013 lowered demand for distressed and default-related services. The decline was partially offset by the aforementioned acquisitions.
Real Estate Market
Existing home sales declined 4.5 percent in the second quarter 2014 from a year ago, partially due to the harsh winter weather in first quarter 2014 that limited new contracts as well as rising interest rates that negatively impacted affordability. Following the usual seasonal pattern, though muted somewhat, home sales increased 5.8 percent sequentially from the first quarter 2014, although this increase was far less than that anticipated by industry forecasts. Median home prices rose 4.6 percent from a year ago and 11.2 percent from the first quarter of this year. As in first quarter 2014, refinance lending volume continued to fall significantly, declining 65.3 percent from the second quarter 2013.
"As always, we are mindful of industry conditions, with some observers predicting a sub-$1 trillion mortgage origination market in 2014. Considering that in 2013 mortgage originations were approximately
Title Insurance Segment
Our title segment revenues increased sequentially 11.6 percent from first quarter 2014. In the second quarter 2014, the title segment generated a pretax margin of 11.2 percent, an increase of 630 basis points from first quarter 2014.
Our direct operations include local offices, commercial and international operations. We generate commercial revenues both domestically and internationally. U.S. and Canadian commercial revenues decreased 8.3 percent to
Total opened title orders in direct domestic operations (excluding acquired offices) decreased 16.7 percent from the second quarter 2013, driven principally due to the decline in refinancing orders. However, opened orders increased 15.6 percent sequentially from the first quarter 2014, resulting from increases in resale and commercial orders. Refinancing orders were 18.1 percent of total opened orders in second quarter 2014, down from 30.2 percent in the second quarter 2013 and down sequentially from 19.1 percent in the first quarter 2014. Title orders closed per workday in direct operations decreased 20.0 percent from second quarter 2013 but rose 32.5 percent from first quarter 2014. Title revenue per closed order in direct operations increased 19.8 percent and 11.0 percent from second quarter 2013 and first quarter 2014, respectively. The increase over the prior year quarter is primarily due to home price appreciation, a shift in order mix to more resale and commercial orders, and, to a lesser extent, a rate increase in
Title policy loss experience continued to improve, including both incurred losses and claims payments, during the second quarter 2014, reflecting our ongoing attention to prudent risk management with emphasis on the quality and profitability of our independent agency network. Due to this ongoing improvement, we recorded a policy loss reserve reduction of
Mortgage Services Segment
Revenues from our mortgage services segment were
During the second quarter, we completed the previously announced acquisitions of
"We continued the diligent pursuit of our strategic initiatives for Mortgage Services, completing the acquisitions of all but the collateral valuation portion of the transactions announced in the first quarter. We remain confident that, once integrated with our existing
Expenses
Employee costs in the second quarter 2014 increased 3.3 percent from the second quarter 2013 and sequentially 6.6 percent from the first quarter 2014. Excluding the impact of acquisitions, employee costs declined 3.6 percent from the second quarter 2013 and increased 2.2 percent sequentially from the first quarter 2014. As a percentage of total operating revenues, employee costs were 34.2 percent, 28.5 percent, and 36.4 percent in the second quarter 2014, second quarter 2013, and first quarter 2014, respectively. Since year-end 2013, total headcount has increased by approximately 700 employees, with an increase of approximately 690 employees due to our recent acquisitions and 360 employees related to a new service offering and contract, partially offset by a reduction of approximately 350 in existing operations.
Other operating expenses increased by 21.4 percent in the second quarter 2014 compared to the second quarter 2013 and 31.6 percent sequentially from the first quarter 2014. The increase from the second quarter 2013 is due principally to the litigation settlement charge, the costs associated with acquisition integration efforts and the impact of acquisitions. Excluding the costs noted above, other operating expenses increased 4.3 percent. As a percentage of total operating revenues, other operating expenses were 20.2 percent, 14.3 percent, and 17.4 percent in the second quarter 2014, second quarter 2013 and first quarter 2014, respectively.
During the second quarter 2014, our cost management program was fully initiated. We identified specific opportunities for structural cost reductions, estimated the savings to be achieved from each, assigned project owners, and began developing implementation plans, including resources necessary and estimated timelines. We remain committed to our stated goal of achieving
Cash provided by operations was
Stewart will hold a conference call to discuss second quarter 2014 earnings at
About Stewart
Forward-looking statements. Certain statements in this news release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance. These statements often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "will," "foresee" or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the tenuous economic conditions; adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses on the need to strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the impact of vetting our agency operations for quality and profitability; changes to the participants in the secondary mortgage market and the rate of refinancing that affects the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agencies or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the outcome of pending litigation; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries as a source of cash flow; the continued realization of expense savings from our continual focus on aligning our operations to quickly adapt our costs to transaction volumes and market conditions; our ability to successfully integrate acquired businesses; our ability to access the equity and debt financing markets when and if needed; our ability to grow our international operations; and our ability to respond to the actions of our competitors. These risks and uncertainties, as well as others, are discussed in more detail in our documents filed with the
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STATEMENTS OF OPERATIONS (condensed) |
||||
(In thousands of dollars, except per share amounts and except where noted) |
||||
Three months ended |
Six months ended |
|||
2014 |
2013 |
2014 |
2013 |
|
Revenues: |
||||
Title insurance: |
||||
Direct operations |
202,831 |
211,900 |
352,520 |
371,546 |
Agency operations |
209,924 |
269,898 |
423,597 |
497,560 |
Mortgage services |
29,886 |
31,014 |
56,103 |
67,083 |
Investment income |
4,861 |
4,285 |
8,718 |
7,928 |
Investment and other (losses) gains – net |
(664) |
123 |
(524) |
(3,184) |
446,838 |
517,220 |
840,414 |
940,933 |
|
Expenses: |
||||
Amounts retained by agencies |
170,779 |
219,489 |
406,554 |
|
Employee costs |
151,251 |
146,397 |
293,173 |
283,227 |
Other operating expenses |
89,164 |
73,426 |
156,901 |
137,223 |
Title losses and related claims |
18,170 |
24,169 |
40,937 |
47,731 |
Depreciation and amortization |
5,055 |
4,221 |
9,450 |
8,578 |
Interest |
883 |
656 |
1,545 |
1,611 |
435,302 |
468,358 |
847,464 |
884,924 |
|
Earnings (loss) before taxes and noncontrolling interests |
11,536 |
48,862 |
(7,050) |
56,009 |
Income tax expense (benefit) |
2,789 |
18,963 |
(5,168) |
21,352 |
Net earnings (loss) |
8,747 |
29,899 |
(1,882) |
34,657 |
Less net earnings attributable to noncontrolling interests |
2,468 |
3,000 |
3,946 |
4,552 |
Net earnings (loss) attributable to Stewart |
6,279 |
26,899 |
(5,828) |
30,105 |
Net earnings (loss) per diluted share attributable to Stewart |
0.27 |
1.09 |
(0.26) |
1.25 |
Average number of dilutive shares (000) |
24,848 |
24,919 |
22,491 |
24,743 |
Segment information: |
||||
Title revenues |
402,831 |
475,429 |
763,849 |
857,843 |
Title pretax earnings before noncontrolling interests |
44,932 |
73,151 |
62,538 |
103,484 |
Mortgage services revenues |
39,378 |
37,321 |
68,110 |
78,515 |
Mortgage services pretax (loss) earnings before noncontrolling interests |
<p class="prnews_p">(1,379) |
5,169 |
(2,943) |
14,992 |
Corporate revenues |
4,629 |
4,470 |
8,455 |
4,575 |
Corporate pretax loss before noncontrolling interests |
(32,017) |
(29,458) |
(66,645) |
(62,467) |
Selected financial information: |
||||
Cash provided (used) by operations |
18,283 |
46,484 |
(31,906) |
43,094 |
Title loss payments - net of recoveries |
21,419 |
29,737 |
54,236 |
63,419 |
Other comprehensive earnings (loss) |
7,773 |
(14,333) |
9,395 |
(16,778) |
Number of title orders opened (000): |
||||
April |
32.8 |
41.0 |
||
May |
32.0 |
40.4 |
||
June |
31.9 |
34.6 |
||
Quarter |
96.7 |
116.0 |
180.4 |
221.1 |
Number of title orders closed (000): |
||||
April |
22.0 |
27.9 |
||
May |
22.6 |
29.6 |
||
June |
23.3 |
27.4 |
||
Quarter |
67.9 |
84.9 |
120.1 |
158.0 |
2014 |
2013 |
|||
Stockholders' equity |
663,903 |
663,089 |
||
Number of shares outstanding (000) |
22,444 |
22,501 |
||
Book value per share |
29.58 |
29.47 |
|
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<b>BALANCE SHEETS (condensed) |
||
(In thousands of dollars) |
||
|
|
|
2014 |
2013 |
|
Assets: |
||
Cash and cash equivalents |
150,376 |
194,289 |
Short-term investments |
38,992 |
38,336 |
Investments – statutory reserve funds |
438,714 |
450,564 |
Investments – other |
130,329 |
86,779 |
Receivables – premiums from agencies |
45,334 |
45,249 |
Receivables – other |
65,776 |
69,289 |
Allowance for uncollectible amounts |
(9,847) |
(9,871) |
Property and equipment, net</span> |
54,154 |
54,266 |
Title plants |
76,822 |
76,822 |
Goodwill |
273,176 |
231,838 |
Intangible assets |
11,572 |
13,050 |
Deferred tax asset |
2,108 |
144 |
Other assets |
82,774 |
75,303 |
1,360,280 |
1,326,058 |
|
Liabilities: |
||
Notes payable |
65,456 |
5,827 |
Convertible senior notes payable |
27,162 |
27,119 |
Accounts payable and accrued liabilities |
108,960 |
119,961 |
Estimated title losses |
494,066 |
506,888 |
Deferred tax liability |
733 |
3,174 |
696,377 |
662,969 |
|
Contingent liabilities and commitments |
||
Stockholders' equity: |
||
Common and Class |
192,578 |
194,768 |
Retained earnings |
446,489 |
452,314 |
Accumulated other comprehensive earnings |
20,277 |
10,882 |
Treasury stock |
(2,666) |
(2,666) |
Stockholders' equity attributable to Stewart |
656,678 |
655,298 |
Noncontrolling interests |
7,225 |
7,791 |
Total stockholders' equity |
663,903 |
663,089 |
1,360,280 |
1,326,058 |
SOURCE
Wordcount: | 3132 |
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