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Realogy Holdings Corp. recently reported financial results for the second quarter ended June 30, 2017, including the following highlights:

  • Revenue was $1.8 billion, an increase of 8 percent as compared with the second quarter in 2016, driven by increases in home-sale transaction volume at the company-owned brokerage segment (NRT) and Realogy Franchise Group (RFG).
  • The company’s combined home-sale transaction volume increased 9 percent year-over-year, consisting of a 12 percent volume gain at NRT and a 7 percent volume gain at RFG.
  • Net income increased 18 percent to $109 million for the period, compared to $92 million in the same period in the prior year. Basic earnings per share was $0.79 compared with basic earnings per share of $0.63 in the second quarter of 2016.
  • Adjusted net income per share was $0.78 compared with adjusted net income per share of $0.74 in the second quarter of 2016.
  • Operating EBITDA was $269 million, compared with $275 million in the second quarter of 2016. The $269 million includes an $8 million reserve to settle a pending legal matter. Excluding the reserve, operating EBITDA would have been up $2 million year-over-year.
  • Free cash flow for the second quarter was $229 million compared with $209 million in Q2 2016, an increase of $20 million due to favorable working capital movements. Year-to-date free cash flow was $157 million, up from $96 million in the first half of 2016.
  • In the first half of 2017, Realogy returned $145 million of capital to shareholders through share repurchases and dividends.

“We delivered another quarter of strong results,” says Richard A. Smith, Realogy’s chairman, CEO and president. “Our residential real estate business outperformed our expectations during the second quarter, driven by stronger average home-sale price gains and the strengthening of high-end markets across the nation. We are pleased with the progress we are making on our strategic initiatives, the most important of which are designed to strengthen the recruitment and retention of sales agents at NRT. We remain focused on maintaining our business momentum and continuing to generate sustainable organic growth.”

In the second quarter of 2017, RFG and NRT achieved a combined home-sale transaction volume (transaction sides multiplied by average sale price) of approximately $147 billion, an increase of 9 percent compared with the second quarter of 2016, which exceeded the company’s guidance range based on stronger than expected average sales price at both business units. NRT reported a home-sale transaction sides increase of 3 percent and an average home-sale price increase of 9 percent, while RFG reported a home-sale transaction sides increase of 1 percent and an average home-sale price increase of 6 percent.

In the title and settlement services sector, TRG was involved in the closing of approximately 53,000 transactions in the second quarter of 2017, reflecting a 7 percent increase in purchase units compared with the second quarter of 2016, and a 44 percent decrease in refinance units, which is consistent with industry trends.

In the relocation segment, while Cartus’ performance in the second quarter was slightly below last year, Cartus continues to be an important part of Realogy’s value proposition, generating highly-qualified leads for its network of agents and helping them to build their businesses. Cartus generated referral opportunities to agents that resulted in over 25,000 home-sale closings in the second quarter.

Looking Ahead

For the third quarter of 2017, Realogy expects to achieve overall home-sale transaction volume gains in the range of 4 percent to 7 percent year-over-year. Based on the company’s closed and open sales activity in July, Realogy expects third quarter home-sale transaction sides to increase between 0 percent to 2 percent year-over-year and average home-sale price to increase in the 4 percent to 5 percent range year-over-year. On a year-over-year basis RFG volume in the third quarter is anticipated to increase between 4 percent to 7 percent, while NRT transaction volume is expected to increase by 5 percent to 7 percent.

For the full year 2017, Realogy expects to generate revenue of between $6.1 billion and $6.2 billion, driven by transaction volume gains of between 5 percent to 7 percent year-over-year. Realogy expects full year 2017 operating EBITDA of between $760 million and $770 million, net of the $8 million legal reserve for the litigation matter, and reflects management’s current view on commission splits for the year, modest investment in growth initiatives and the transition to its new mortgage joint venture. Based on the expected operating EBITDA range noted above, this is expected to result in the company generating free cash flow of between $500 million and $530 million in 2017.

Capital Allocation

The company returned $145 million of capital to shareholders through share repurchases and dividends in the first half of 2017. During the first half of 2017, Realogy repurchased approximately 4.1 shares of common stock in the open market at a weighted average market price of $28.97 per share for a total of $120 million and returned an additional $25 million through quarterly cash dividends paid to stockholders. The company had approximately 136.8 million shares of common stock outstanding as of June 30, 2017.

“We are encouraged by the success of NRT’s strategic initiatives and the strengthening we are seeing at the high end of the market, combined with the benefits of our earlier business optimization initiatives,” says Anthony E. Hull, Realogy’s executive vice president, CFO and treasurer. “We believe this positions the company to generate strong free cash flow and higher absolute revenue and EBITDA levels in the future.”

Balance Sheet

The company ended the quarter with cash and cash equivalents of $219 million. Total long-term corporate debt, including the short-term portion, net of cash and cash equivalents (net corporate debt), totaled $3.3 billion at June 30, 2017. The company’s net debt leverage ratio was 3.9 times at June 30, 2017.

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