First American Financial (FAF) Q2 Earnings & Revenues Beat

First American Financial Corporation FAF reported second-quarter 2019 operating income per share of $1.58, which outpaced the Zacks Consensus Estimate by 17%. Moreover, the bottom line improved 18.8% year over year.

The quarter benefited from effective expense management and growth in investment income.

The company noted that low interest rates continued to strengthen the purchase market, drive substantial growth in refinance activity and support a healthy commercial market.

First American Financial Corporation Price, Consensus and EPS Surprise

First American Financial Corporation Price, Consensus and EPS Surprise

First American Financial Corporation price-consensus-eps-surprise-chart | First American Financial Corporation Quote

Behind the Headlines

Operating revenues of $1.5 billion increased 0.5% year over year and beat the Zacks Consensus Estimate by nearly 1.7%

Net investment income surged 37.9% to $77.7 million.

Total expense of $1.3 billion decreased 1.6% year over year, attributable to lower personnel costs, premiums retained by agents, premium taxes and other operating expenses.

Segment Results

Title Insurance and Services: Total revenues remained flat year over year at $1.4 billion.

Pretax margin was a record 17%, up 170 basis points.

Title open orders increased 7% to 296,200 while Title closed orders increased 0.2% year over year to 196,600.

Average revenue per order increased to $2,620, attributable to higher residential real estate values, partially offset by a shift in the mix of direct revenues to lower premium refinance transactions.

Average revenue per order for purchase transactions increased 3% while average revenue per order for commercial transactions increased 1%.

Specialty Insurance: Total revenues increased 2.3% year over year to $123 million.

Pretax margin expanded 440 basis points to 12.8%, attributable to a decline in loss ratio to 56.4%.

The segment benefited from home warranty business that had lower claim losses due to lower claim frequency and severity.

Financial Update

First American exited the quarter with cash and cash equivalents of $1.4 billion, down 3.8% from 2018 end. Notes and contracts payable were $729.6 million, down 0.3% from 2018 end.

Stockholders’ equity was $4.1 billion, up 9.2% from 2018 end.

Debt-to-capital ratio at second-quarter end was 18.4%.

Cash flow from operations was $266.7 million, up 26.5% year over year.

Zacks Rank

First American currently has a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other P&C Insurers

Of the insurance industry players that have reported second-quarter results so far, The Progressive Corporation PGR and RLI Corp. RLI beat the respective Zacks Consensus Estimate for earnings. However, The Travelers Companies, Inc. TRV missed the same.

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