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

First American Financial Corporation (NYSE: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

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. (NYSE:TRV) and RLI Corp. (NYSE:RLI) outpaced the respective Zacks Consensus Estimate while The Progressive Corporation’s (NYSE:PGR) missed the same.

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