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First American Financial (FAF) Q3 Earnings call transcript Oct 24, 2024

Daily EarningsMonday, Oct 28, 2024 8:26 pm ET

1min read

FAF --

In the third quarter of 2024, First American Financial Corporation reported a measured improvement in market conditions, with adjusted revenue up 4% and adjusted earnings per diluted share increasing by 10% to $1.34. This marks the first year-over-year growth the company has experienced since the second quarter of 2022.

Growth Drivers

The company's commercial division experienced significant growth, with revenues up 19% due to an 80% increase in large transactions and a sharp increase in the fee per file. In the purchase market, demand for mortgages picked up towards the end of the quarter, with a decline in mortgage rates and a slight increase in closed purchase orders. The refinance market also showed improvement, with an increase in transaction activity and a 20% rise in refinance revenue.

Challenges

Despite these positive signs, the company faced challenges in the purchase market, with a decline in closed purchase orders per day compared to the previous year. This was attributed to continued home price appreciation, which negatively impacted affordability and drove an increase in the average revenue per order. Additionally, the company's Home Warranty segment saw a slight decrease in pretax margin, with a 7.7% margin compared to 9.3% last year. This was due to increased marketing spend in the direct-to-consumer channel to drive future profitability.

Investment and Innovation

First American Financial Corporation also announced a rebalancing of its investment portfolio, which is expected to save $90 million of cash taxes in the near term and increase investment income by approximately $67 million per year beginning in Q4. The company is committed to developing innovative proprietary technologies to boost productivity and enhance the customer experience, and is exploring opportunities to reduce technology spend without compromising on innovation.

Outlook

Looking ahead, the company expects challenging conditions in the purchase market to persist, but is optimistic about the commercial business, with a strong pipeline of large transactions and higher term refinancing demand. The company is cautiously optimistic about a turn in the cycle, with modest revenue growth for the full year of 2024 expected to enable title margins similar to those of 2023.

Conclusion

First American Financial Corporation's Q3 earnings call highlighted a mixed picture of challenges and opportunities. Despite facing challenges in the purchase market, the company's commercial division showed significant growth, and the rebalancing of its investment portfolio is expected to generate additional revenue. With a focus on innovation and a strong balance sheet, the company is well-positioned to navigate the market's challenges and capitalize on opportunities for growth.

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