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Fortegra Financial Earnings Beat, Down Y/Y; Outlook Retained

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Fortegra Financial Corporation delivered net income of 16 cents per share in the second quarter of 2014, which surpassed the Zacks Consensus Estimate by 33%. However, earnings declined 27.3% year over year owing to the effect of discontinued operations in the year-ago quarter.



Behind the Headlines

Fortegra Financial generated net operating revenues of $27.3 million that surpassed the Zacks Consensus Estimate of $26 million. Net revenues also increased 5.2% year over year largely on the back of organic growth in total revenue, and decline in member benefit claims and net losses, and loss adjustment expenses.

Total revenue of Fortegra Financial in the second quarter stood at $88.5 million, up 4.2% year over year. The improvement was driven by organic growth that stemmed from an increase in payment protection products.

Meanwhile, direct and assumed premiums written improved 20.2% year over year to $120.2 million.

Operating expenses of Fortegra Financial rose 1.9% year over year to $18.2 million owing to an increase in costs associated with staff additions at ProtectCELL.

Adjusted Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) increased 7.1% year over year to $9.4 million with adjusted EBITDA margin expanding 60 basis points to 34.4%.

Financial Details

Fortegra Financial exited the quarter with total investments and cash and cash equivalents of $163.2 million, up from $160.5 million at the end of 2013.

Total debt of Fortegra Financial increased to $46 million at the end of the quarter under review from $38.3 million at end-2013.

As of Jun 30, 2014, shareholders’ equity was $175.3 million, up from $166.5 million as on Dec 31, 2013.

2014 Guidance

Fortegra Financial reiterated its 2014 revenue growth estimate of 7–9% and adjusted EBITDA margin projection of 32–34%. The reiteration came on the back of impressive performance in the first half of 2014.

Our Take

Although Fortegra Financial’s second quarter earnings successfully surpassed our estimates, it declined year over year. Nevertheless, strong focus on revenue improvement and expense management reinstate faith in the stock. Expense management initiatives helped the company improve its EBITDA margins without having to compromise on the quality of services offered.

Performance of Other Multiline Insurers

American International Group Inc. (AIG - Free Report) reported operating earnings per share of $1.25, which surpassed the Zacks Consensus Estimate of $1.05 by 19%.

Cigna Corp. (CI - Free Report) reported second-quarter 2014 net operating earnings of $1.96 per share, beating the Zacks Consensus Estimate of $1.85.

Assured Guaranty Ltd. delivered operating net income of 56 cents per share in the second quarter of 2014, surpassing the Zacks Consensus Estimate by 50%.

Zacks Rank

Fortegra Financial carries a Zacks Rank #3 (Hold). A better-ranked stock in the multiline insurance space that appears attractive at current levels is Cigna with a Zacks Rank #2 (Buy).

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