Fidelity National Financial Inc.'s third-quarter profits easily beat Wall Street's expectations, and its own, and the company said its insurance processing business would bring in substantial profits this quarter.
The Jacksonville, Fla., banking technology company said its net income rose 11% from the same quarter last year, to $214.4 million or $1.21 per diluted share. It had previously predicted earnings of $1 to $1.15 a share, and analysts had been looking for $1.08. Revenue grew 17%, to $2.53 billion.
William P. Foley 2d, Fidelity National's chairman and chief executive, said in a conference call with analysts Wednesday that business was strong across the board.
Fidelity National has steadily expanded in the past few years, mainly through acquisition. It has often said its long-term goal is to offer customers many different banking services, and during the call Mr. Foley spotlighted its relationship with Webster Financial Corp. of Waterbury, Conn., as an example of what it wants to do.
Over the past few quarters Webster has agreed to use Fidelity National's core processing, mortgage processing, loan syndication, item processing, and customer relationship products. Webster's implementation concluded last quarter and will generate revenue this quarter, Mr. Foley said.
"The importance of the Webster Bank conversion cannot be overstated," he said. "Webster Bank is a model for the type of relationships we would like to see."
The specialty insurance division's revenue rose 48.8%, to $95.4 million.
Fidelity National shifted flood claims processing for the division in-house in the third quarter. It had previously outsourced that work to Fiserv Inc. By taking on the processing, Fidelity National cut its costs by half, and "we will be retaining all of the revenue associated with processing policies and claims in the future," Mr. Foley said.
Revenue for the insurance unit will climb even more this quarter, because of flood claims from this year's hurricanes, he said.
Fidelity National participates in the National Flood Insurance Program; it issues policies and collects a commission on the sales, as well as a percentage of each claim's value. It expects $65 million of pretax profits from the program this quarter and next.
The weak spot was the Financial Institution Software and Services business, whose revenue rose 21.1%, to $371.7 million. However, Mr. Foley said the unit's organic sales declined 4.2% from the third quarter of last year, when the unit had reported organic growth of 10.5%.
The decline was caused partially by the loss of a contract with Riggs National Corp., which PNC Financial Services Group Inc. acquired in May. The division also lost some customers when it bought Aurum Technology Inc. in 2004.
Geoffrey Dunn, an analyst at Keefe, Bruyette & Woods Inc., said the fact that Fidelity National gets flood insurance business from the federal government "is not new." However, "this is the first time we've heard them quantify it, and that's bigger than I expected."
The software division was "the only modest negative" in the third-quarter earnings, and Fidelity National seemed confident that it was a temporary dip, Mr. Dunn said. He estimated that the segment represents about 15% of the company. "It's a chunk of it, but it's certainly not a dominating piece."
Mr. Foley said that the deal to merge Fidelity National's technology unit, Fidelity National Information Services Inc., with the transaction processor Certegy Inc. remains on track.
Fidelity National has previously said the deal could close this quarter, but Mr. Foley said that the Securities and Exchange Commission is reviewing the deal. It may not close until the first quarter.
