StanCorp Financial Group (SFG) reported
fourth-quarter 2011 earnings of 87 cents per share from continuing
operations, striding ahead of the Zacks Consensus Estimate of 79
cents per share. However, results were 24% below $1.14 per share
earned in the prior-year quarter. Net income from continuing
operations for the quarter was $38.6 million, slipping 27% from $53
million reported in fourth-quarter 2010.
StanCorp benefited from an after-tax net capital gain of $0.7
million or 2 cents per share in the quarter under review. Including
the one-time gain, StanCorp reported net income of $39.3 million or
89 cents per share against $52 million or $1.12 per share in the
fourth quarter of 2010. The prior-year quarter included after-tax
capital losses of $1 million or 2 cents per share.
Moreover, the reported quarter experienced higher benefit ratio
in the Insurance Services segment, primarily due to higher claims
incidence in its group long-term disability insurance business.
Full year 2011 operating earning came in at $3.19 per share, 8
cents per share above the Zacks Consensus Estimate but 32% down
from $4.70 per share earned in 2010. Operating earnings declined
39% over the prior year to $143.8 million in 2011.
Including capital loss of $4.5 million or 10 cents per share,
the company reported net income of $139.3 million or $3.09 per
share, compared with $189 million or $4.02 a share.
Operational Performance
StanCorp’s total revenue in the fourth quarter of 2011 was
$727.7 million, up 2.5% from $710.2 million in the year-ago
quarter. The improvement primarily stemmed from higher premiums.
Revenue surpassed the Zacks Consensus Estimate of $711 million.
Full year revenue was $2.9 billion, up 4% year over year and was
almost in line with the Zacks Consensus Estimate.
Total benefit and expense during the quarter increased 6.5% year
over year to $675.3 million. The upside was buoyed by the increase
in benefits to policyholders, higher operating expenses, higher
commissions and bonuses and higher premium taxes. Full year total
benefit and expense escalated 7.9% over 2010 to $2.7 billion.
Segment Update
Insurance Services: Premiums from this business
totaled $540.9 million in the fourth quarter of 2011, up 5.6% year
over year. Higher premiums from group insurance and individual
disability insurance fueled the overall premium increase.
Sales from the group insurance business in the fourth quarter
increased 2.2% to $74.7 million from $73.1 million in the year-ago
period.
Group insurance benefit ratio in the quarter was 82.8%, up 540
basis points year over year, while individual disability insurance
benefit ratio was 70.9%, down 1100 basis points year over year.
Pretax income in third-quarter 2011 totaled $53.7 million, down
25.6% year over year. The decrease resulted primarily from lower
favorable claims in the group long-term disability insurance
business.
Asset Management: Fourth-quarter 2011 pretax
income declined 11.6% to $14.5 million from $16.4 million in
fourth-quarter 2010. The decrease was mainly driven by lower
administrative fee revenues due to the decline in assets under
administration, somewhat offset by lower operating expense.
Assets under administration were $20.43 billion as of December
31, 2011, showing a decrease of 6.6% from $21.89 billion as of
December 31, 2010.
During the quarter under review, StanCorp Mortgage Investors
originated $237 million of commercial mortgage loans, higher than
$215.8 million in the prior-year quarter. For full year 2011,
StanCorp Mortgage Investors originated $1.01 billion of commercial
mortgage loans, compared with $887.5 million in 2010.
StanCorp’s investment portfolio, as of December 31, 2011,
consisted of approximately 56.9% fixed maturity securities, 41.2%
commercial mortgage loans and 1.9% real estate. The overall
weighted-average credit rating of the fixed maturity securities
portfolio assigned by Standard & Poor’s was “A”.
Dividend and Share Repurchases
During the quarter under review, StanCorp paid an annual
dividend of 89 cents per share.
During fourth-quarter 2011, StanCorp spent $0.3 million for
repurchasing 0.1 million shares at an average price of $31.97. For
full year 2011, StanCorp spent $90.3 million for repurchasing 2.2
million shares at an average price of $41.41.
As of December 31, StanCorp had approximately 3.0 million shares
remaining under its repurchase authorization.
Balance Sheet
StanCorp ended 2011 with cash and cash equivalents of $138.4
million, down 8.9% from 2010 end. Long-term debt was $300.9 million
at quarter end compared with $551.9 million at 2010 end, reflecting
a substantial decline of 45.5%.
Book value per share as of December 31, 2011 was $45.42,
reflecting a 9.7% upside from $41.42 as of December 31, 2010.
Looking Ahead in 2012
StanCorp expects operating earnings in the band of $3.60 to
$3.90 per share.
The company also expects to deliver return on average equity and
accumulated other comprehensive income (AOCI) from equity, in the
range of 9-10%.
The guidance includes annual benefit ratio for the group
insurance business in the 80-82% range and share repurchases
between $40 million and $80 million.
The company also expects that adoption of ASU 2010-26 will
increase pre-tax expenses by $3 million to $4 million annually with
a cumulative effect adjustment to retained earnings of
approximately $20 million to $25 million in the first year.
The effective income tax rate is expected to be 26% to 27%.
Our Take
The positives for StanCorp include a better performing Asset
Management segment, premium growth, continued good investment
performance, conservative underwriting practices, positive
recommendations from credit rating agencies, focus on increasing
shareholder value and a strong capital position.
The company also expects the group disability insurance benefit
ratio to improve given the pricing actions taken at the long-term
disability business.
We retain our Neutral recommendation on StanCorp Financial. The
quantitative Zacks #3 Rank (short-term Hold rating) for StanCorp
indicates no clear directional pressure on the stock over the near
term.
Headquartered in Portland, Oregon, StanCorp Financial Group is
one of the largest providers of employee benefits products and
services in the U.S. The company operates across the country, with
a dominant position in western U.S. It competes with Unum
Group (UNM), MetLife, Inc. (MET) and
Principal Financial Group Inc. (PFG).
METLIFE INC (MET): Free Stock Analysis Report
PRINCIPAL FINL (PFG): Free Stock Analysis Report
STANCORP FNL CP (SFG): Free Stock Analysis Report
UNUM GROUP (UNM): Free Stock Analysis Report
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