Realogy reports a Q4 net loss as company misses guidance

Realogy's revenue decreased $90M in Q4 2018, largely due to lower transaction volume at NRT

Realogy Holdings Corporation, the largest residential real estate company in the U.S. by sales volume, reported $1.4 billion in revenue in the fourth quarter of 2018, a year-over-year decrease of $90 million, according to its fourth-quarter earnings report released Tuesday.

The drop in revenue was largely due to a decrease in transaction volume at its own-side brokerage NRT. The industry giant also fell short on its earnings per share (EPS) guidance, reporting an $0.04 adjusted EPS. Analysts estimated a fourth quarter-ending EPS of $0.10.

“2018 was both an exciting and challenging time at Realogy and in the industry,” Realogy CEO and President Ryan Schneider said in a statement. “While we face an uncertain housing market, the strategic changes we are driving for agents across products, technology, data and talent are beginning to get traction, giving me early confidence that these initiatives will lead to better company performance.”

In the fourth quarter, Realogy reported a net loss of $22 million, compared to a net income of $255 million for the fourth quarter of 2017.

Realogy also missed on its full-year EPS. The company reported $1.52 EPS while the consensus guidance had Realogy at $1.61 EPS. The low end of the guidance was $1.50 EPS.

For the fiscal year 2018, Realogy reported $6.1 billion in revenue, a decrease of $35 million compared to 2017. The company also reported a yearly net income of $137 million for 2018, compared to $431 million for 2017.

One of the big issues with Realogy’s net earnings was a rise in agent commission costs, which increased by $52 million in 2018, according to Schneider. Schneider thinks that won’t be the case in 2019, especially as Realogy continues to standardize commissions.

“We think 2019 won’t look anything like that pressure in 2017 and 2018,” Schneider said. “We think the whole year will feel like half of the pressure we felt in 2017 and 2018.”

The company’s combined yearly home sale transaction volume – defined as transaction sides multiplied by average sale price – increased 1 percent over 2017, but fell 5 percent year-over-year in the fourth quarter of 2018.

Realogy’s 191,700 U.S.-based affiliated independent sales agents under NRT and Realogy Franchise Group helped consumers close an estimated 1.4 million transactions for approximately $512 billion in sales volume.

Realogy continued to roll out products that fit into its open-architecture technology ecosystem during the fourth quarter of 2018. The company launched Desk, the backbone of its tech platform where agents can access their email, manage contacts, create listing presentations, update their bios and profiles, create and send market reports and view educational opportunities. Agents can also market listings through the proprietary listing concierge marketing platform the company launched in December.

The company is also additionally planning to roll out a lead generation program and using machine learning technology to identify highly productive agents for recruiting.

“We are more agile, we are using data better and we’re delivering better technology,” Schneider said on a conference call with investors.

Schneider was brought in a year ago from Capital One, without a background in real estate, to oversee Realogy as it increased its technology offerings to compete in a competitive industry landscape at a time when home sales and price appreciation are beginning to slow.

The company also announced on Tuesday that its board of directors authorized a new share repurchase program for up to $175 million, in addition to the $29 million remaining under the share repurchase authorization announced in February 2018.

Total corporate debt, including short-term portion, net of cash and cash equivalents totaled $3.4 billion at the end of the year. Realogy’s net debt leverage ratio was at 4.6 times earnings before interest, tax, depreciation and amortization.

“We ended the year at a 4.6x leverage ratio and we face an uncertain housing market,” Tim Gustavson, Realogy’s interim chief financial officer, said in a statement. “Given this, in the first half of the year, you will see us focus on debt paydown.”

“We will be watching closely how the macro environment evolves and you should expect that the weaker the housing market, the more we will look to pay down debt,” Gustavson added. “The stronger the housing market, the more we will look to share repurchases.”

Looking ahead to 2019, Schneider noted that forecasters are predicting a challenging first half of the year for home sales, but with substantial potential for the second half of the year to be positive.

Beside overseeing NRT, the nation’s largest brokerage, Realogy boasts a franchise portfolio that includes Better Homes and Gardens Real Estate, Coldwell Banker, Corcoran, Century 21, Sotheby’s International Realty, ERA, Citi Habitats, Climb Real Estate and ZipRealty.

Email Patrick Kearns