American Financial Misses Q2 Earnings Due to Higher Expenses - Analyst Blog


American Financial Group, Inc. ( AFG )  reported second-quarter 2014 operating earnings per share of $1.07, lagging the Zacks Consensus Estimate of $1.15. This was due to higher expenses compared to revenue growth.

On a year-over-year basis, earnings increased 11.5%, buoyed by higher contribution from specialty property and casualty group as well as earnings strength in the annuity segment.

American Financial Group, Inc - Earnings Surprise | FindTheBest

American Financial's total revenue of $1.39 billion was up 22.2% year over year, and easily surpassed the Zacks Consensus Estimate of $903 million. The increase was driven by higher premiums and net investment income, partly offset by lower realized gains.

Net investment income of $379 million  was14.2% up year over year, attributable to higher invested cash that was received in connection with the Summit acquisition.

Total cost and cost expense of $1.26 billion increased 24.6% year over year due to higher losses and expenses in both P&C and Annuity segments.

Segment Results

American Financial's Property and Casualty segment generated $998 million in net premium written, which increased 33% year over year primarily led by a 49% increase in premium written in the Specialty Casualty sub-segment along with 10% growth in Property and Transportation, partly offset by 5% decline in the Specialty Financial sub segment.  The segment's combined ratio improved only 10 basis points year over year to 96.9%.

The company's Annuity segment reported $949 million premium which improved 10% year over year, primarily led by a significant increase of 60% in sale of single premium in the financial institutions market.

Financial Update

Long-term debt at American Financial as of the end of the second quarter remained almost unchanged at $912 million compared with $913 million as of Dec 31, 2013.

As of Jun 30, the company's book value of $47.95 per share increased 4.5% from the 2013 year-end level.

Core net operating earnings of 9.6% increased slightly from 9.2% at year-end 2013.

Share Buyback and Dividend Update

During the second quarter, American Financial spent $20 million on share buyback.

2014 Guidance Reaffirmed

American Financial reaffirmed its operating earnings expectation of $4.50 and $4.90 per share. Management expects Annuity premiums for the full year to be 5% to 10% lower than $4 billion achieved in 2013. For its Property and Casualty segment, the company expects net written premium of 17% to 21% for the full year.

American Financial carries a Zacks Rank # 3 (Hold).

Peer Performance

Other players that reported second-quarter earnings ahead of the Zacks Consensus Estimate are Aspen Insurance Holdings Ltd. ( AHL ), ACE Limited ( ACE ) and Assurant Inc. ( AIZ ).

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ASSURANT INC (AIZ): Free Stock Analysis Report

AMER FINL GROUP (AFG): Free Stock Analysis Report

ASPEN INS HLDGS (AHL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: ACE , AIZ , AFG , AHL

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