Fidelity National Financial Inc. said Wednesday that restructuring charges related to the planned spinoff of its title insurance operations led to a decline in second-quarter profits, though it managed to beat Wall Street expectations.
The Jacksonville, Fla., title insurer and banking technology provider reported that net income was $190 million, 14.5% less than it reported for last year's second quarter.
Earnings per share of $1.07 easily topped the Street's estimate of 94 cents.
The company said that in addition to high corporate expenses related to the restructuring, it was hurt by a slowdown in the mortgage business. Revenue for the quarter rose 10.5%, to $2.43 billion.
In a conference call with analysts, chairman and chief executive William P. Foley 2d touted Fidelity's growth. Revenue in the information services unit rose 18.9%, to $176 million, and revenue in the software and services unit rose 36.8%, to $405 million.
But title and escrow revenue rose only 3.5%, to $1.6 billion.
In May, Fidelity National announced it would partially spin off its title insurance operations by creating a company to be called Fidelity National Title Group. On Wednesday it announced the establishment of a board of directors for the spinoff.
Mr. Foley will be the title group's chairman. Willie Davis, John Farrell, Phil Heasley, Bill Imparto, Don Koll, William Lyon, and Frank Willey, members of the parent company's board, will become directors of Fidelity National Title and will no longer be on the other board.
"The formation of this board sets the stage for FNF to truly operate as a holding company," Mr. Foley said during the conference call.
Fidelity National plans to create a publicly traded stock for the title company. It expects to distribute 17.5% of the shares to Fidelity National shareholders tax-free this quarter.
Mr. Foley said that the holding company would initially have majority ownership positions in Fidelity National Title and 100% ownership of the specialty insurance group.
He said that as a holding company, Fidelity National Financial "will have the flexibility" to invest in businesses that might not be a natural fit but could deliver better returns to shareholders.
Fidelity National has said in the past that a lack of synergy between its technology and mortgage operations was one reason it decided to restructure.
Fidelity has made several acquisitions to expand its technology offerings in the past two years. It made four acquisitions in 2004 but said in November that it would hold off on acquisitions while integrating its acquired properties and moving ahead with its restructuring.
But Mr. Foley said Wednesday that acquisitions would be a priority after the spinoff.
The CEO said that in the second quarter Fidelity National landed a 10-year international license and maintenance contract with a major global financial institution. He could not name the customer but said, "We are confident this is the largest international software license contract ever signed."
Geoff M. Dunn, an analyst for Keefe, Bruyette & Woods Inc., said Fidelity had a good quarter and that the profit decline reflected overall weakness in the market.
"Just because earnings are down year over year is not a bad thing," he said. "People who follow this company know very well there's a slowdown" in mortgage originations.
