StanCorp Beats EPS, Misses Revenue - Analyst Blog

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StanCorp Financial Group Inc. ( SFG ) reported third quarter 2012 operating earnings of $1.05 per share, outperforming the Zacks Consensus Estimate by 36 cents. Results were also 11.7% higher than 94 cents earned in the prior-year quarter. Net income for the quarter was $46.6 million, jumping 10.4% from $42.2 million reported in third quarter 2011.

The outperformance came on the back of favorable claims experience in the group insurance business, decline in operating expenses and increased net investment income in the Asset Management segment.

Including after tax capital loss of $1.7 million or 4 cents a share, the company reported net earnings of $44.9 million or $1.01 per share, comparing unfavorably with $47.0 million or $1.05 per share in the year-ago quarter. The year-ago period included after-tax capital gain of $4.8 million or 11 cents a share.

Operational Performance

StanCorp's total revenue in the third quarter of 2012 was $713.7 million, down 1.3% from $723.3 million in the year-ago quarter. Lower premiums and lower administrative fees primarily resulted in the decline. Revenue also lagged the Zacks Consensus Estimate of $721 million.

Total benefit and expense during the quarter inched down 0.7% year over year to $652.4 million. Decrease in benefits to policyholders, lower operating expenses and lower commissions and bonuses aided the decline.

Segment Update

Insurance Services : Premiums from this business totaled $527.5 million in the third quarter of 2012, down 2.0% year over year. Lower premiums from group insurance largely induced the overall premium decrease.

Sales from the group insurance business in the quarter plunged 67.8% to $20.5 million, largely attributable to pricing competition.

Group insurance benefit ratio in the quarter was 79.7%, down 100 basis points year over year, while individual disability insurance benefit ratio was 75.7%, up 940 basis points year over year.

Pretax income in the quarter totaled $62.4 million, down 4% from $65.0 million in the year-ago quarter. The decline was primarily attributable to lower group insurance premiums and less favorable claims experience in the individual disability business. However, favorable claims experience in the group insurance business somewhat limited the decline.

Asset Management : Third-quarter 2012 pretax income improved 40% over the prior-year quarter to $17.5 million. The improvement was mainly triggered by higher net investment income from commercial mortgage loan prepayment fee revenues and bond call premiums.

Assets under administration were $21.65 billion as of September 30, 2012, up 7.4% from $20.17 billion as of September 30, 2011, largely reflecting higher equity values for retirement plan assets under administration.

During the quarter, StanCorp Mortgage Investors originated $347.3 million of commercial mortgage loans, slightly lower than $271.7 million in the prior-year quarter.

StanCorp's investment portfolio, as of September 30, 2012, consisted of approximately 56.7% fixed maturity securities, 41.0% commercial mortgage loans and 2.3% real estate. The overall weighted-average credit rating of the fixed maturity securities portfolio assigned by Standard & Poor's was "A."

Other : Pretax loss totaled $18.6 million in the quarter, compared to a loss of $11.3 million in the year-ago quarter.

Balance Sheet

StanCorp exited the third quarter with cash and cash equivalents of $172.4 million, up from $138.4 million at 2011-end. Long-term debt was $551.5 million at quarter end, increasing from $300.9 million at 2011-end.

Book value per share as of September 30, 2012 was $49.08, reflecting a 7.8% upside from $45.53 as of September 30, 2011.

Our Take

StanCorp remains well poised on the strength of premium growth, continued good investment performance, conservative underwriting practices, and a strong capital position.

The company continues to work on pricing actions to mitigate higher group long term disability claims incidence and continued low interest rate environment.

We retain our Neutral recommendation on StanCorp Financial. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term. MetLife Inc. ( MET ), which competes with StanCorp, shares the same Zacks Rank and is scheduled to release its third quarter earnings before the opening bell on November 1.

METLIFE INC (MET): Free Stock Analysis Report

STANCORP FNL CP (SFG): 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 Nasdaq, Inc.

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

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