A month has gone by since the last earnings report for Assurant, Inc. (NYSE:AIZ) . Shares have added about 5.3% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is AIZ due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Assurant Q1 Earnings & Revenues Top Estimates, Up Y/Y
Assurant reported first-quarter 2018 net operating income of $2 per share, which beat the Zacks Consensus Estimate by 5.8%. Also, the bottom line improved 6.9% from the year-ago period. Lower effective tax rate owing to the tax cut and decent underlying profitable growth in key businesses like mobile business and multi-family housing, drove this improvement. However, higher level of net operating loss at the Corporate segment and a substantial catastrophe loss in Global Housing, partially offset this upside.
Total revenues improved 7.2% year over year to $1.6 billion, mainly attributable to higher premiums earned, fees and other income as well as net investment income. Moreover, the top line beat the Zacks Consensus Estimate by 5.2%.
Net investment income improved nearly 8% year over year to $130.2 million.
Total benefits, loss and expenses increased 12.4% to $1.5 billion, mainly due to a substantial increase in policyholder benefits, selling, underwriting, general and administrative expenses and interest expense.
Net earned premiums, fees and others at Global Housing slid about 1.6% year over year to $523.1 million, primarily due to lower placement rates as well as real-estate owned volume in lender placed insurance plus reduction in client demand for originations and field services in mortgage solutions. However, sustained growth in multi-family housing and higher contributions from international housing products partially offset this downside.
The company reported net operating income of $71.2 million, which increased 15% from the year-ago quarter. This improvement was mainly attributable to the impact of the reduced effective tax rate.
Net earned premiums, fees and others at Global Lifestyle improved 14.1% year over year to $918.5 million. This benefit was primarily driven by growth in new and existing mobile protection programs as well as vehicle protection. However, a decline in mobile trade-in volumes partially offset the upside.
Net operating income of $55.8 million rose 6.5% year over year. The upside was driven by the impact of the reduced effective tax rate.
Net earned premiums, fees and others at Global Preneed grew 4.5% year over year to $46.2 million, primarily owing to growth in the United States including prior period sales of the Final Need product.
Net operating income slipped 1% year over year to $9.8 million, mainly due to the impact of the reduced effective tax rate.
Net operating loss at Corporate & Other was $20 million, substantially wider than the year-ago quarter’s net operating loss of $10.1 million. Increases in employee-related costs from the year-earlier quarter along with the adverse impact of the reduced effective tax rate were responsible for this downside.
Assurant’s financial position remains strong with around $575 million in corporate capital as of Mar 31, 2018. Total assets rose 1.8% to $32.4 billion as of Mar 31, 2018 from $31.8 billion at year-end 2017.
Share Repurchase and Dividend Update
The company did not buy back any shares in the quarter under review.
The company’s total dividends amounted to $30 million in the first quarter.
Assurant estimates net operating income (excluding reportable catastrophe loss) to grow between 10% and 14% from the reported results of $413 million in 2017. The growth in earnings is likely to reflect a lower effective tax rate and a considerable rise in underlying segment earnings (while adjusting for $12.5 million of net benefits in 2017 disclosed items). Declines in lender-placed insurance and credit insurance are likely to be offset by a profitable increase in Connected Living and multi-family housing as well as vehicle protection.
Notably, with the sanction of the U.S. Tax Cuts and Jobs Act (TCJA), Assurant’s consolidated effective tax rate is anticipated to decrease to 22-23% from 33% with nearly one-third of the savings to be reinvested to support future growth.
Assurant projects operating earnings per share (excluding catastrophe loss) to grow in excess of net operating income, representing the benefit of a lower consolidated effective tax rate, moderate growth in underlying earnings as well as capital management.
The company expects Global Housing to witness a year-over-year decline in its net operating income excluding reportable catastrophe loss before taking into consideration the recently sanctioned tax reform. Further, the company expects to witness a decline in the ongoing lender-placed insurance normalization and mortgage solutions. However, continued growth in multi-family housing is likely to partially offset this downside. Additional savings from expense management efforts are to be realized toward the end of 2018 and further into 2019. Higher net operating income is expected after reflecting a lower effective tax rate of about 20-21% with a portion of the tax savings to be reinvested for future growth. Revenues are projected to be close to 2017-levels as decrease in lender-placed insurance normalization are offset by growth in multi-family housing and mortgage solutions.
Global Lifestyle’s net operating income is likely to increase before taking into consideration the recently sanctioned tax reform. Profitable growth is likely to be fueled by newly introduced mobile programs as well as vehicle protection expansion and expense efficiencies. The ongoing decline in credit insurance will partially offset this probable upside. Lower effective tax rate of 22-24% with a portion of the tax savings to be reinvested for future growth, is anticipated to boost results. Moreover, the company projects revenues to improve from growth in Connected Living and vehicle protection, globally.
Global Preneed is anticipated to experience an increase in its revenues and earnings, mainly on the back of the company’s alignment with market leaders before taking into consideration the recently sanctioned tax reform. Lower effective tax rate of about 22% with a portion of the tax savings to be reinvested for future growth, is estimated to enhance results.
Assurant expects full-year net operating loss to be close to 2017’s loss of $63 million before considering the recently sanctioned tax reform at Corporate & Other. The loss will likely increase after taking into account an effective tax rate of about 20%.
Dividends from the units, namely Global Housing, Global Lifestyle and Global Preneed are predicted to be higher than the net operating income (including catastrophe loss) owing to the implementation of TCJA.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
Assurant, Inc. Price and Consensus
At this time, AIZ has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. The stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. It's no surprise AIZ has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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