Fidelity National's (FNF) Beats On Q2 Earnings, Revenues

Fidelity National Financial, Inc’s (NYSE:FNF) second-quarter 2016 adjusted earnings from continuing operations of 74 cents per share surpassed Zacks Consensus Estimate of 65 cents by 13.9%. The bottom line also grew 13% year over year.

/> In the second quarter, Fidelity National continued with its mid-single digit growth in the purchase market. Despite a slight decline in commercial revenues and lower refinance closings the company managed to generate a 16.5% adjusted pre-tax title margin.

Behind the Headlines

Revenues of $2.1 billion beat the Zacks Consensus Estimate of $2.0 billion and increased 5% year over year. Increase in Agency title premiums, Escrow, title related and other fees as well as interest and investment income primarily drove the year-over-year improvement.

The Title segment revenues rose about 5.8% year over year to $1.8 billion from $1.7 billion. Adjusted pre-tax earnings increased 6% year over year to $300 million. Total commercial revenue decreased 5% year over year to $244 million. Both average fee per file and title claim increased 4% year over year.

For the other segment known as Black Knight Financial Services, the company reported revenues of $256 million driven by Servicing Technology revenues of approximately $172 million. The pre-tax earnings increased 78% to $41 million.

The total expenses for the second quarter came in at $1.8 billion, up 5.8% from $1.7 billion in the year-ago quarter. Higher personnel cost, agent commissions and other operating expenses were primarily responsible for the increase in expenses. Claim loss and interest expenses increase slightly.

Adjusted earning before interest, taxes, pepreciation and amortization (EBITDA) was $417 million as against $392 million in the year-ago period. EBITDA margin remained flat at 19.5%.

Financial Update

Adjusted cash flow from operations decreased 21% year over year to $277 million =. Capital expenditure increased a massive 147% to 114 million from $46 million in the year-ago quarter. Free cash flow decreased 47% year over year to $165 million.

Share Repurchase Update

The company spent $84 million to buyback 2.5 million shares in the quarter.

Guidance

Fidelity National expects to maximize earnings from operations and remain the most profitable title insurance company in the country.

The decrease in interest rate in late June resulted in a meaningful increase in refinance openings has been observed in the last three weeks, which signals at an improved third-quarter refinance closings.

Our Take

The Zacks Rank #3 (Hold) company has a leading position in the financial services market. The company’s growing international exposure, recurring revenue model, diversified product portfolio, cost synergies from acquisitions and a loyal customer base have lent it a competitive edge.

Fidelity National has been executing strategic partnerships to drive long-term growth. The company consistently creates shareholder value through efficient capital deployment efforts, such as share repurchases, dividend increases, and mergers.

Performance of Other Insurers

Among the other players from the insurance industry that have reported their second-quarter earnings so far, the bottom line at RLI Corp. (NYSE:RLI) and Progressive Corp. (NYSE:PGR) missed their respective Zacks Consensus Estimate, while Brown & Brown Inc.’s (NYSE:BRO) earnings beat the same.