PHH's profits up 23%, to $24 million, for quarter Hunt Valley company is being bought by HFS for $1.7 billion

November 19, 1996|By Sean Somerville | Sean Somerville,SUN STAFF

PHH Corp., the Hunt Valley company that agreed last week to be purchased by HFS Inc. of New Jersey for $1.7 billion, yesterday reported its quarterly profit jumped almost 23 percent.

For its second quarter, which ended Oct. 31, net income was $24 million, up from $19.6 million for the same quarter in the prior year. Revenue was $604 million, up 2.4 percent over last year's $590 million.

On a per share basis, earnings increased 19 percent to 68 cents, up from 57 cents -- well above analysts' expectations of about 62 cents a share and marked PHH's 20th consecutive quarter of increased earnings.

'Great quarter'

"It was a great quarter," said Cliff Ransom, a Baltimore-based analyst who follows the company for NatWest Securities. "But the fact of the matter is, it's all moot. It's all academic."

PHH employs 5,470 people -- including about 1,100 in Maryland -- in its fleet management, real estate and mortgage banking divisions. It markets its services to corporations, government agencies, membership organizations and consumers.

HFS Inc. of Parsippany, N.J., franchises hotels that include the Days Inn, Ramada and Howard Johnson chains. It also operates the Century 21, Coldwell Banker and Electronic Realty Associates real estate franchises and recently bought the Avis Inc. car rental system.

Ransom said HFS' purchase of PHH appeared safe from competition. He said the deal included a $50 million breakup fee. That means any competing bidder would have to beat HFS' bid of $49.50 per share -- 61 percent higher than PHH's stock price before the deal was announced -- and pay an additional $50 million to HFS, Ransom said.

Yesterday's report was likely one of PHH's last as an independent company. The merger, announced Nov. 11, is expected to be made final in the first quarter of 1997.

The company's vehicle management division reported operating income of $17.3 million, a 52 percent increase from $11.3 million during the same period last year.

In a statement, Robert D. Kunisch, chairman and chief executive officer, said the division was boosted by growth in "fee-based revenues, especially from fuel card services, continued strong results from United Kingdom operations," and reduced costs in North America.

Roy Meierhenry, the company's chief financial officer, said the reduced costs were the result of a decrease in the cost of technology.

The company's real estate services division, which includes its relocation business, reported operating income of $11.7 million, up 3 percent. "Fee-based services such as household goods bTC shipments and home finding were especially strong," Kunisch said.

He said costs increased as a result of "continued systems investments." The average value of homes sold increased 4 percent, while home sales declined 7 percent.

The operating income of the mortgage banking segment increased 4 percent to $10.9 million. Meierhenry said margins increased, in part as PHH generated more business from its telemarketing operations.

At the same time, however, loan applications and loan closings decreased because of higher interest rates. PHH's training expenses also increased.

In the first half of fiscal 1997, the company reported net income of $45.7 million, or $1.29 a share, compared with $37.9 million, or $1.09 a share, for the same period a year ago. Revenues increased to $1.23 billion from $1.17 billion.

PHH's stock closed yesterday at $44.25, down $1.25, continuing a slide from last week's 52-week high of $48.50.

Ransom, the NatWest analyst, said, "You get a lot of fundamental shareholders who take a look at it and say 'I'll take my money and run.' "

Pub Date: 11/19/96

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