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Realogy Stumbles on Earnings and Is About to Face Tougher Competition

House for Sale
Source: Thinkstock
Realogy Holdings Corp. (NYSE: RLGY) reported second-quarter 2014 results before markets opened Monday. The real-estate broker franchise operator reported diluted earnings per share (EPS) for the quarter of $0.46 and $1.51 billion in revenues. In the same period a year ago, the company reported EPS of $0.57 on revenue of $1.53 billion. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.56 and $1.49 billion in revenue.

Transaction volume increased by 3% year-over-year for the quarter based on an increase of 7% in the average sale price and a decline in the number of transactions at the company’s franchise group (down 3%) and its company-owned brokerage operations (down 5%).

Realogy owns Coldwell Banker, Century 21, Sothebys International Realty and Better Homes and Gardens Real Estate brands, and recently it acquired brokerage and technology company ZipRealty for $166 million. The acquisition of ZipRealty was announced about a week before the announcement of a merger between Realogy competitors Zillow Inc. (NASDAQ: Z) and Trulia Inc. (NYSE: TRLA).

The company’s third-quarter outlook was prefaced by noting that the 2013 third quarter included “exceptional homesale transaction volume growth of 29%.” From there, the company’s CFO said, volumes are expected to drop 4% to 6% with sales prices increasing by a similar amount. That adds up to a homesale transaction volume in the range of +/- 2% compared with a year ago.

Realogy’s CEO said:

With our recently announced agreement to acquire ZipRealty, we seized upon an exceptional opportunity to further drive growth in our brokerage operations and undertake a significant technology upgrade across our franchise systems. … While price was the principal reason for the overall [transaction] volume increase, better-than-expected [sales volume] comparisons also drove the better-than-expected performance.

The merger of the top two online real-estate companies is not good news for Realogy, which trails both Zillow and Trulia substantially in website traffic. The company’s Coldwell Banker and Century 21 brands rank eighth and 10th overall in unique online visitors. Even combined they trail by more than 10 times the combination of Zillow and Trulia.

Shares were inactive in premarket trading Monday, having closed at $36.10 on Friday in a 52-week range of $34.77 to $51.35. Thomson Reuters had a consensus analyst price target of $44.80 before today’s results were announced.

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