Stewart Reports Operating Results for the Second Quarter 2008

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HOUSTON, July 30, 2008 – Stewart Information Services Corporation (NYSE-STC) today reported the results of its operations for the second quarter and six months ended June 30, 2008. (Dollar amounts in the table below are in millions, except per share figures.)

  Second Quarter
  2008(a) 2007
Total revenues
$428.5
$573.4
Pretax (loss) earnings before minority interests
(41.2)
19.2
Net (loss) earnings
(26.6)
10.1
Net (loss) earnings per diluted share
(1.47)
0.55

 

  Six Months
  2008(a) 2007(b)
Total revenues
$822.7
$1,105.1
Pretax (loss) earnings before minority interests
(82.0)
14.6
Net (loss) earnings
(51.9)
5.4
Net (loss) earnings per diluted share
(2.87)
0.29

 

(a) The second quarter of 2008 includes pretax charges totaling $24.2 million ($15.7 million after taxes, or $0.87 per share) relating to a reserve adjustment of $10.0 million for prior policy years, $8.2 million relating to large claims and two agency defalcations, and a software impairment charge of $6.0 million. The first three months of 2008 includes an additional charge of $4.6 million ($3.0 million after taxes, or $0.17 per share) relating to an agency defalcation.

(b) The first six months of 2007 includes a $3.2 million gain ($2.1 million after taxes, or $0.11 per diluted share) from the sale of two subsidiaries and a charge of $7.4 million ($4.8 million after taxes, or $0.26 per diluted share) relating to large claims.

Financial Results

The continuing decline in our orders resulting from the decrease in new and existing home sales, home prices, construction and lending in the second quarter of 2008, coupled with worsening policy claims payment experience and a software impairment charge, resulted in a pretax (and before minority interests) loss of $41.2 million compared with earnings of $19.2 million in the same quarter last year. The software impairment charge of $6.0 million relates to software developed, and now abandoned, in our REI segment for one of its subsidiaries.

Revenues in the second quarter of 2008 fell to $428.5 million, a decline of 25.3 percent from the $573.4 million in the same period last year. This reduction in revenues reflects the second quarter 2008 decline in our order volume resulting from decreases in existing home sales (down 16.7 percent), new home sales (down 33.2 percent) and existing home prices (down 15.8 percent) compared with the second quarter of 2007. Our international operations remained profitable, offsetting, in part, our loss in the second quarter of 2008 for U.S. operations.

Total revenues for the first half of 2008 were $822.7 million, down 25.6 percent from the same period in 2007. Overall, the Company reported a loss of $82.0 million before taxes and minority interests in the first half of 2008 compared with a profit of $14.6 million in the same period in 2007.

"We are responding strategically to this downturn by implementing cost reductions throughout the Company. We remain committed to our long-term strategies and restructuring efforts even in this extremely difficult real estate environment," said Malcolm S. Morris, co-chief executive officer and chairman. "We are progressing in our shared-services initiatives and have contracted several national relationships for savings in procurement. These initiatives and relationships, which range from accounting and information technology to procurement and human resources, have significant potential for process improvements and cost reductions. We are also consolidating many of our separate corporate entities to better serve our customers, streamline our administrative functions and reduce fixed costs.

"We are experiencing higher than expected payments of policy claims, which resulted in our taking a $10.0 million charge this quarter relating to prior policy years," added Morris. "However, we are continuing to make progress in reducing our risk exposure through the review and cancellation of higher-risk title agencies and by auditing potential title agencies prior to adding them to our agency network."

"We continue to respond to declining market conditions by aggressively reducing variable and fixed expenses," said Stewart Morris, Jr., co-chief executive officer and president. "In the second quarter of 2008, our employee count was reduced by 350, which brings our year-to-date reduction to 810, or 9.6 percent. Our total reduction in employee count is 2,400, or 24.6 percent, since December 31, 2006. We have also closed 68 unprofitable branch and office locations since the beginning of 2008.

"In addition, we are responding to the consumer in these tough markets," said Morris. "We announced a simplification of our rate structure in California to better serve our customers. Also in this quarter, we formed a new multi-state foreclosure trustee company that will allow us to offer nationwide default services. We remain on track for site conversions of legacy production systems to our new, but proven, web-based production systems this year. A recent fire in an office where we have implemented our paperless technology reinforced our commitment to long-term investment in our web-based production system and SureClose®, our transaction management technology. Within hours of the fire, the office was up and running remotely via the internet and closings continued with no loss of service or files," said Morris.

Stewart Information Services Corporation is a customer-driven, technology-enabled, strategically competitive, real estate information, title insurance and transaction management company. Stewart provides title insurance and related information services required for settlement by the real estate and mortgage industries throughout the United States and in international markets. Stewart also provides post-closing lender services, automated county clerk land records, property ownership mapping, geographic information systems, property information reports, document preparation, background checks and expertise in tax-deferred exchanges. More information can be found at http://www.stewart.com.

This press release may contain forward-looking statements, which include all statements other than statements of historical facts. Forward-looking statements are not guarantees of performance and no assurance can be given that Stewart's expectations will be achieved. In particular, historical order counts do not necessarily indicate future revenues since Stewart cannot predict the number of orders that will result in closings.

STEWART INFORMATION SERVICES CORPORATION
STATEMENTS OF EARNINGS
(In thousands of dollars, except per share amounts)

  Three months ended
June 30
Six months ended
June 30
 
2008
2007
2008
2007
Revenues        
Title insurance:        
Direct operations
200,688
270,428
381,275
500,042
Agency operations
213,513
276,434
404,566
548,688
 
Real estate information
11,302
16,497
26,018
33,030
Investment income
7,456
9,168
15,534
18,219
Investment and other (losses) gains - net
(4,412)
902
(4,709)
5,124
 
428,547
573,429
822,684
1,105,103
 
Expenses
Amounts retained by agencies
174,562
222,752
330,124
445,142
Employee costs
146,076
179,096
298,039
355,888
Other operating expenses
86,412
105,241
173,248
198,884
Title losses and related claims
46,595
35,117
76,316
66,976
Depreciation and amortization
8,950
10,149
18,041
20,034
Interest
1,121
1,874
2,936
3,542
 
469,727
554,229
904,715
1,090,466
 
(Loss)earnings before taxes and minority interests
(41,180)
19,200
(82,031)
14,637
Income tax (benefit) expense
(16,470)
5,541
(33,233)
2,921
Minority interests
1,934
3,535
3,137
6,354
Net (loss) earnings
(26,644)
10,124
(51,935)
5,362
 
(Loss) earnings per diluted share
(1.47)
0.55
(2.87)
0.29
Average number of diluted shares (000)
18,092
18,351
18,069
18,340
 
Segment information:
Title revenues
417,245
556,932
795,787
1,068,873
Title pretax (loss) earnings before minority interests
(32,763)
19,862
(74,308)
11,807
REI revenues
11,302
16,497
26,897
36,230
REI pretax (loss) earnings before minority interests
(8,417)
(662)
(7,723)
2,830
 
Selected financial information:
Cash (used) provided by operations
(15,862)
31,922
(47,309)
16,806
Title loss payments - net of recoveries
38,981
22,424
69,463
47,877
Changes in other comprehensive earnings - net of taxes
(7,654)
(286)
(7,496)
547
 
Number of title orders opened (000):
April
48.4
59.0
May
43.1
60.7
June
38.9
58.1
Quarter
130.4
177.8
         
Number of title orders closed (000):
Quarter
93.5
125.1
 
 
June 30
2008
 
December 31
2007
 
         
Stockholders' equity
696,903
754,059
 
Number of shares outstanding (000)
18,146
18,031
 
Book value per share
38.41
41.82
 
         



STEWART INFORMATION SERVICES CORPORATION BALANCE SHEETS (condensed)
(In thousands of dollars)
 
June 30
2008
 
December 31
2007
 
Assets        
Cash and cash equivalents
102,900
109,239
 
Short-term investments
57,212
79,780
 
Investments - statutory reserve funds
503,152
518,586
 
Investments - other
83,721
98,511
 
Receivables - premiums from agencies
37,968
48,040
 
Receivables - other
105,405
93,335
 
Allowance for uncollectible amounts
(12,352)
(11,613)
 
Property and equipment
86,411
96,457
 
Title plants
79,027
78,245
 
Goodwill
209,879
208,824
 
Intangible assets
12,986
17,157
 
Other assets
102,899
105,413
 
   
 
1,369,208
1,441,974
 
   
Liabilities  
Notes payable
116,799
108,714
 
Accounts payable and accrued liabilities
93,502
122,167
 
Estimated title losses
447,229
441,324
 
Minority interests
14,775
15,710
 
 
672,305
687,915
 
   
Contingent liabilities and commitments  
   
Stockholders' equity  
Common and Class B Common Stock and
additional paid-in capital
143,472
141,196
 
Retained earnings
545,182
597,118
 
Accumulated other comprehensive earnings
12,346
19,842
 
Treasury stock
(4,097)
(4,097)
 
   
Total stockholders' equity
696,903

754,059

 
   
 
1,369,208
 
1,441,974
 
   
July 30 , 2008        

Source: Stewart Information Services Corporation


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