In its first quarter as an independent company after spinning off from Cendant, Realogy Corp. (NYSE: H) on Wednesday reported third-quarter net income of $87 million, down 62 percent from $227 million net income in third-quarter 2005.
The company also reported revenue of $1.73 billion in third-quarter 2006, down 16 percent compared to third-quarter 2005.
Realogy has embarked on a cost-cutting plan, which includes office closures, that should trim operating expenses by about $60 million per year, said Richard A. Smith, vice chairman and president at Realogy. The company announced that about $35 million worth of cuts would be realized this year. Smith said the company is “on track to merge, consolidate or close about 100 NRT offices by year-end, while preserving our productive agent population and market position.”
Realogy chairman and CEO Henry R. Silverman said during Wednesday’s earnings presentation that Realogy officials could enter into talks if another company proposes an acquisition of Realogy, adding that the company “does not have … any such plans.”
Silverman did say that Realogy’s tax lawyer has said that it would be OK for the company to enter into such discussions. “If someone were to approach us with an acquisition proposal … we could certainly enter into dialogue with them but we certainly couldn’t discuss whether that has happened,” he said.
Silverman said that the conviction of Walter A. Forbes, Cendant’s first chairman who was forced to resign amid a financial scandal originating at his former company, could actually benefit Realogy if Forbes’ appeal is denied. Forbes may owe about $60 million to $65 million to Realogy depending on the outcome of any appeal, Silverman said.
Realogy’s earnings before interest, taxes, depreciation and amortization, or EBITDA, was $277 million in the third quarter compared to $406 million in third-quarter 2005, though that figure does not include separation, restructuring and legacy costs associated with former parent Cendant.
The company reported diluted earnings per share of 34 cents in the third quarter and adjusted earnings per share of 52 cents for the quarter, compared to 91 cents in third-quarter 2005.
Realogy owns real estate franchise brands and also has company-owned real estate offices. Its franchise and company-owned brands include Coldwell Banker, Century 21, ERA and Sotheby’s International Realty, among others.
Home sale sides – there are two sides to every real estate transaction – declined 22 percent for the Realogy Franchise Group and 23 percent at NRT, the company-owned brokerage unit, in the third quarter compared to third-quarter 2005.
“The larger decline at NRT reflects its concentration in the major coastal markets such as California and Florida, where recent home sale declines have been more pronounced than the national average, partially offset by brokerage acquisitions. The decline in sides was marginally offset by slightly higher year-over-year home prices at NRT,” according to an earnings announcement.
The company expects home sales to be down 15-20 percent in the franchise group and 13-16 percent at NRT offices this year compared to 2005.
Company officials attributed the declining year-over-year results to “the industry-wide slowdown in U.S. existing home sales, which began in 2005.”
Smith said in a statement, “Once we cycle through the current period of moderation, we expect to return to long-term, double-digit earnings growth driven by increasing home sales and price coupled with incremental growth from company-specific initiatives such as new franchise sales, brokerage acquisitions and increased cross-selling.”
He also said it’s still too early to say whether the real estate market has reached a bottom yet, noting that the market this year is “weaker than expected.”
The Realogy share price closed at $24.65 Wednesday, which was down $1.13 from the previous day’s close. The company’s stock began regular trading on the New York Stock Exchange Aug. 1.
In late August, company officials authorized a stock repurchase program for up to 48 million shares, which is paid for primary through $1.4 billion in proceeds that Realogy received from Cendant’s sale of Travelport.
The company has already repurchased 37 million shares of its common stock and “intends to repurchase the remaining 11 million shares under the share repurchase program through open market purchases,” the company announced.
Real estate commission rates have held roughly steady within company-owned offices for the fifth consecutive quarter, according to the earnings report, “primarily as a result of the ‘Getting What You’re Worth’ campaign, which NRT implemented with its sales associate population in late 2005.”
The company expects full-year 2006 revenue to range from $6.4 billion to $6.7 billion; EBITDA before separation, restructuring and legacy costs is expected to range from $800 million to $900 million; adjusted earnings per share to range from $1.44 to $1.76 per share; and net income, after deducting all such costs, is expected to range from $250 million to $340 million, or $1.03 to $1.43 per share.
A Web replay of the company’s third-quarter earnings conference call is available at http://www.realogy.com/. A telephone replay will be available from 8 p.m. ET on Nov. 1 until 10 p.m. ET on Nov. 8 by calling (800) 251-9790. International participants can call (402) 220-9702.
