PHH Corp (PHH) delivers outsourcing solutions in private-label mortgage originations and fleet management through its subsidiaries, PHH Mortgage and PHH Arval.

PHH Mortgage provides outsourced solutions to financial institutions, real estate companies, credit unions, corporations and government agencies. PHH Mortgage is one of the top 10 originators of retail residential mortgages in the country. They also provide home financing directly to consumers.

PHH Arval is a fleet management services provider for corporate clients and government agencies throughout the US and Canada. They currently have over 580,000 automobiles and trucks under management in both sales and service fleets.

Disappointing Q3 Results and Guidance

PHH reported it third quarter results on November 6, 2013. The quarter resulted in a net loss of $52 million or $0.90 per basic share. Net operating earnings after excluding one-time items were ($0.12) per share, substantially short of the Zacks Consensus Estimate of $0.24 per share.

While the fleet business delivered a 14% increase in segment profit over the prior year; the mortgage business generated a loss due to lower total loan margins, lower lock volume, and severance costs. Mortgage production earnings decline was driven by higher interest rates, declines in refinancings and a continued mix shift to fee for service originations.

Tangible book value per share declined to $27.33 at September 30, 2013, down 3% from $28.14 at June 30, 2013.

Downwards Revisions

Due to disappointing results, quarterly and annual estimates have been revised sharply downwards in the past few days by analysts.

Zacks consensus estimate for the current quarter now stands at $0.17 per share versus $0.20 per share, 30 days ago, while the full-year consensus estimate is $1.58 per share now, down from $2.53 per share. Further, the estimate for 2014 has gone down from $1.91 to $1.74 per share.

The company has missed Zacks consensus estimates in all last four quarters, with an average negative surprise of 87.2%. Downward estimates revisions sent PHH to a Zacks Rank # 5 (Strong Sell) on November 12, 2013.

The Bottom Line

PHH is currently Zacks Rank # 5 (Strong Sell) stock and it also has a longer-term recommendation of “Underperform”. While the company is trying to reposition its business model and reduce its fixed cost structure, rising interest rates and declining mortgage refinancings will continue pose headwinds in the near term.

Better Play?

Investors may like to avoid the mortgage industry for the time being in view of the near-term challenges lying ahead. The industry currently has a Zacks Industry rank of 239 out of 265.