It has been about a month since the last earnings report for Assurant (AIZ - Free Report) . Shares have added about 1.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Assurant due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Assurant Q2 Earnings Beat Estimates, Revenues Down Y/Y
Assurant, Inc. reported second-quarter 2020 net operating income of $2.75 per share, which outpaced the Zacks Consensus Estimate by 23.3%. The bottom line also improved 18% from the year-ago quarter.
The results reflect persistent growth in mobile subscribers within Global Lifestyle and favorable non-catastrophe loss experience across major products of Global Housing. Further, the company benefited from several expense management initiatives and reduced discretionary spending due to the COVID-19 pandemic, which was partially offset by softer investment income.
However, total revenues declined 3.1% year over year to $2.4 billion, mainly due to lower fees and other income and weaker net investment income. Moreover, the top line missed the Zacks Consensus Estimate by 5.1%.
Net investment income plunged 11% year over year to $137.2 million, primarily owing to reduced yields at each operating segment. Nevertheless, total benefits, loss and expenses declined 5% to $2.2 billion, mainly on account of a decline in policyholder benefits and selling, underwriting, general and administrative expenses.
Net earned premiums, fees and others at Global Lifestyle declined 2% year over year to $1.8 billion. The downside can primarily be attributed to fall in mobile trade-in volumes due to stringent observance of lockdown measures on account of the pandemic and unfavorable foreign exchange. Net operating income of $121.8 million improved 11% year over year, driven by continued growth in mobile subscribers across North America and Asia Pacific, and reduced claims activity primarily outside the United States within Global Automotive and Connected Living. This was partially negated by increased claims within Global Financial Services.
Net earned premiums, fees and others at Global Housing declined 4% year over year at $488.9 million. This was primarily due to reduction in policies in-force from the previously disclosed financially insolvent client and reduced real estate owned volumes. Net operating income of $85.4 million improved 19% year over year driven by favorable non-catastrophe loss experience, moderate growth in specialty product lines and absence of losses within the small commercial business.
Net earned premiums, fees and others at Global Preneed inched up 1% year over year to $50.3 million, owing to continued growth pre-funded funeral policies and prior period sales of the Final Need product. Net operating income plunged 19% year over year to $13.7 million, mainly due to softer investment income and higher mortality claims stemming from the pandemic.
Net operating loss at Corporate & Other was $26.9 million, wider than the year-ago quarter’s net operating loss of $24.4 million on account of weak investment income, which was owing to lower yields and more liquid investable assets. It was partially offset by lower expenses related to deferral of new hires and limited travel.
Liquidity was $357 million as of Jun 30, 2020, about $132 million higher than the company’s current targeted minimum level of $225 million. Total assets dipped 0.1% to $44.2 billion as of Jun 30, 2020 from 2019 end. Total shareholders’ equity came in at $6 billion, up 5.6% from the level at 2019 end.
Share Repurchase and Dividend Update
In the second quarter, the company bought back 0.25 million shares for $26 million. During July, the company did not buy back shares. It now has $403 million remaining under its current share buyback authorization. The company’s total dividends amounted to $44 million in the reported quarter, including $40 million in common stock dividends and $5 million in preferred stock dividends.
For the full year, Assurant estimates net operating income per diluted share, excluding catastrophe losses, to rise in the band of 12-16% from the figure reported in 2019 ($9.21). The improvement can primarily be attributed to continuous expense discipline and profitable growth across all business segments. The company anticipates double-digit growth in net operating income, excluding catastrophes. The upside is likely to come on the back of earnings growth within Global Lifestyle and Global Housing. However, net operating income is estimated to remain lower for the second half of 2020 compared with the first half. For 2020, net operating loss in Corporate and Other are expected between $86 million and $90 million, mainly due to reduced investment income partly offset by decline in general expenses. Interest expense and preferred dividends are anticipated to be around $81 million and $19 million, respectively.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Assurant has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Assurant has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.