Stewart Information's Profit Growth Trails Revenue as Margins Slip
Stewart Information Services posted a 25% jump in quarterly revenue to $899.2 million, but title-segment margins narrowed even as the company's newly acquired MCS unit powered a 75% surge in its real estate solutions business.
Stewart Information Services (STC), the title insurance and real estate services provider, reported second-quarter revenue of $899.2 million, up 25% from $722.2 million a year earlier, as net income attributable to the company rose 17% to $37.2 million, or $1.21 a share, from $31.9 million, or $1.13 a share.
The quarter marked a shift in Stewart's growth pattern. Revenue growth accelerated from the 28% pace posted in the first quarter, when a low year-earlier base had lifted net income more than fivefold to $17.0 million from $3.1 million. By the second quarter, that comparison had normalized, leaving earnings growth at 17% even as revenue expansion picked up — a sign that costs were rising alongside the top line rather than falling behind it.
That cost pressure showed up directly in margins. GAAP pretax margin compressed to 6.1% from 6.5%, and the adjusted measure fell to 7.0% from 7.6%, even though absolute pretax income grew 18%. The dilution reversed a trend from the first quarter, when GAAP pretax margin had expanded to 3.0% from 1.0% a year earlier.
The title segment, Stewart's core business, illustrated the reversal most clearly. Operating revenue rose 15% to $683.6 million, decelerating from 21% growth in the first quarter, while segment pretax income slipped 1% to $48.6 million and adjusted pretax income fell 8% to $47.9 million. Adjusted pretax margin in the segment narrowed to 6.9% from 8.5%, a sharp turn from the first quarter's expansion to 4.1% from 2.2%. The segment showed underlying efficiency gains: combined employee and other operating costs fell to 45% of operating revenue from 47%, and the title loss expense ratio improved to 3.2% from 3.6%, continuing a trend of favorable claims experience.
Within title, growth diverged by product line. Domestic commercial title revenue climbed 20% to $89.8 million on a 21% rise in closed orders tied to energy and data-center transactions, with the average commercial fee per file roughly flat near $16,900 — growth driven by volume rather than pricing. Domestic non-commercial title revenue was essentially unchanged at $177.9 million, down 1%, as a 10% increase in the average residential fee per file to $3,200 offset softer transaction volume.
The real estate solutions segment was the quarter's standout, with revenue surging 75% to $197.4 million on the newly acquired MCS business and higher credit information and valuation services revenue. Segment pretax income nearly tripled to $18.5 million, and adjusted pretax margin widened to 13.6% from 10.9%. That growth came with added costs elsewhere: consolidated other operating expenses rose to 27.4% of total revenue from 24.6%, reflecting the RES segment's expansion and higher title outside search and service fees, even as employee costs fell to 27.4% of revenue from 29.5%. Corporate segment net expenses rose to $12.0 million from $9.2 million, driven by higher interest expense on debt taken on for the MCS acquisition.
Investment income declined 9% to $14.8 million on lower interest rates and escrow balances, reversing a 10% increase posted in the first quarter. Net cash from operations rose 13% to $60.5 million from $53.4 million, driven by higher net income.