First American Financial (FAF) Q2 Earnings & Revenues Beat

First American Financial Corporation FAF reported second-quarter 2020 operating income per share of $1.05, which outpaced the Zacks Consensus Estimate by 26.5%. However, the bottom line declined 33.5% year over year.

The company’s results reflect improved segmental revenues, partially offset by increase in expenses.

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 $1.6 billion increased 7.3% year over year on the back of higher agent premiums and information and other revenues. Moreover, the top-line figure beat the Zacks Consensus Estimate by nearly 5.6%.

Net investment income however decreased 24.8% to $58.4 million.

Total expense of $1.4 billion increased 9% year over year due to higher personnel costs, premiums retained by agents, provision for policy losses and other claims, depreciation and amortization, interest, and other operating expenses.

Segment Results

Title Insurance and Services: Total revenues increased 7.1% over year to $1.5 billion. The upside came on the back of improved agent premiums and higher information and other revenues, which can be primarily attributed to the recent acquisition of Docutech and growth in mortgage originations that led to higher demand for the company’s title information products.

However, pretax margin contracted 70 basis points (bps) year over year to 16.3%.

Title open orders increased 18.6% to 351,300 while Title closed orders increased 29.5% year over year to 254,500, driven by a 160% surge in refinance orders.

Average revenue per order decreased 21.3% over year to $7,400.

Average revenue per direct title order declined to $1,950, primarily due to the shift in order mix to lower-premium residential refinance transactions.

Average revenue per order for purchase transactions increased 0.8% while average revenue per order for commercial transactions decreased 21.2%.

Specialty Insurance: Total revenues increased 8.5% year over year to $133.5 million, driven by higher direct premiums and escrow fees.

However, pretax margin contracted 730 bps to 5.5%

Financial Update

First American exited the quarter with cash and cash equivalents of $1.5 billion, up 2.5% from 2019 end. Notes and contracts payable were $1 billion, up 38.8% from 2019 end.

Stockholders’ equity was $4.6 billion, up 3.3% from 2019 end.

Cash flow from operations was $343.8 million, up 28.9% 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 Insurers

Of the insurance industry players, which have reported second-quarter results so far, earnings of The Progressive Corporation PGR and RLI Corp. RLI beat the respective Zacks Consensus Estimate while that of W.R. Berkley Corporation WRB missed the same.

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