Progressive's October Earnings Drop

Progressive Corp.’s (PGR) earnings per share for October 2011 were 9 cents, plummeting 50% both year over year and sequentially. Net income for the month was $55.7 million, down 27% year over year and 28% sequentially.

The company recorded net premiums of $1.45 billion during October 2011, up 9% from $1.34 billion in October 2010 and up 24% from $1.17 billion during September 2011. Net premiums earned were $1.45 billion, up 4% from $1.39 billion in the year-ago period and up 26% from $1.15 billion in the prior month.

Net realized gains on securities were $10.5 million during October 2011, a substantial decline from a gain of $25.6 million in October 2010, but reversing a loss of $0.4 million in September 2011. The combined ratio − the percentage of premiums paid out as claims and expenses − deteriorated 80 basis points over the prior-year period to 96.7% in the month under review.

Progressive reports every month. During October, policies in force remained healthy, with the Personal Auto segment increasing 5% year over year and 0.9% sequentially. Special Lines also increased 5% year over year but dragged 0.4% over the preceding month.

In Personal Auto, Direct Auto reported growth of 7% year over year and 1% from the preceding month. Agency Auto was up 4% year over year and 0.8% from the last month. However, Progressive’s Commercial Auto segment continued to drag results, reporting a decline of 1% year over year.

Total expenses for the reported month increased 4.8% to $1.42 billion from $1.35 billion in October 2010. The major components contributing to the increase in total expenses were a 5.4% increase in losses and loss adjustment expenses, a 2% increase in underwriting expenses and a 2% increase in policy acquisition costs.

Progressive reported a book value per share of $9.63, up from $9.31 as of October 31, 2010 and up from $9.37 as of September 31, 2011.

Return on equity on a trailing 12-month basis was 16.7%, down from 16.9% in October 2010 and 16.9% in September 2011. The debt-to-total-capital ratio was 29.1% as of October 2011, up from 24.1% as of October 2010 but down from 29.6% as of September 2011.

We maintain our Neutral recommendation on Progressive. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Headquartered in Mayfield Village, Ohio, The Progressive Corporation is one of the largest auto insurers in the country. It is a leading independent agency writer of private passenger auto coverage, a market leader for the motorcycle product and is one of the leading companies in the commercial auto insurance market. It competes with Allstate Corporation (ALL).