XL Group Beats on Bottom Line - Analyst Blog
August 03 2011 - 2:06PM
Zacks
XL Group (XL) reported its second-quarter 2011
operating profit of 75 cents per share, surpassing the Zacks Consensus Estimate of 48
cents. Results compare favorably with 71 cents in the year
ago quarter. Operating profit was $243 million, inching up 0.2%
from $242 million in the prior-year quarter.
Select new business growth
coupled with an increase in income from operating affiliates and
positive prior year loss development, offset by larger natural
catastrophe losses and other large individual losses incurred
during the quarter drove the slight increase in the
quarter.
Adjusted for net realized
losses on investments of $9.4 million, net realized and unrealized
losses on derivatives of $12.6 million, net realized and
unrealized losses on investments and derivatives related to XL’s
insurance company affiliates of $0.9 million and foreign exchange
gains of $5.5 million, net income attributable to shareholders was
$225.7 million in the quarter, compared with net income of $191.8
million in the prior-year quarter.
Net profit was 69 cents per share in the quarter under review,
compared with 56 cents in second-quarter 2010.
The year-earlier quarter included net realized losses on
investments of $57.9 million, net realized and unrealized losses on
derivatives of $19.9 million, net realized and unrealized losses on
investments and derivatives related to XL’s insurance company
affiliates of $0.06 million and foreign exchange gains of $27.1
million.
Operational Performance
Total revenue in the quarter was $1.69 billion, up 9.2% year
over year from $1.64 billion in the year-ago period. Higher
premiums and fee income drove the overall climb.
Net premiums earned in the quarter increased 7.4% year over year
to $1.31 billion.
Net investment income of $296.5 million was down 2% year over
year largely due to lower U.S. interest rates and cash outflows
from the invested portfolio.
Underwriting profit in the quarter was $67 million in the
quarter, down 29% from the
prior
year quarter. Combined ratio in the second quarter deteriorated 270
basis point years over year to 94.9%.
Operating expenses
increased 8.7% year over year to $266.1 million.
P&C
operations:
Gross premiums written in the quarter were $1.76 billion, up 16%
year over year largely driven by new business
initiatives.
Net premiums earned were $1.31 billion, up 17% year over
year.
Life operations: Gross premiums written were
$100.3 million, up 8% year over year.
Net premiums earned were $92.2 million, up 6.7% year over
year.
Financial Position
Cash and cash equivalents of XL Group were $2.86 billion at
quarter-end compared with $3.02 billion at 2010-end.
Debt at second-quarter
2011-end was $2.46 billion flat compared to 2010-end.
Book value per ordinary
share as of June 30, 2011 was $30.87, up 6.3% from $29.03 as of
March 31, 2011. The improvement was driven by better earnings
coupled with the benefit of share buybacks and unrealized gains in
investments.
Share
Repurchase
In the second quarter, XL
Group spent $92.3 million to buy back 4.3 million shares at an
average price of $21.36. Subsequent to the second quarter, the
company bought back another 7.3 million shares for $157.7 million.
The company is left with $440.4 million under its
authorization.
Peer Comparison
ACE Limited (ACE), which competes with XL
Group, reported a second-quarter operating income of $2.01
per share, which was ahead of
the Zacks Consensus Estimate by 33 cents. Better-than-expected
results stemmed from higher premiums and investment
income.
Our Take
Based on the company’s conservative underwriting practices and
repositioned P&C portfolio, we expect XL Group to fare well
going forward. The company is also taking initiatives to expand its
operations and is aiming to tap the opportunities in the growing
economy.
The company continues to enhance shareholders' value
through share buybacks and dividend increases. The company also scores
strongly with the credit rating agencies.
We maintain our Underperform recommendation on XL Group. The
quantitative Zacks #5 Rank (short term Strong Sell rating) for the
company indicates downward pressure on the stock over the near
term.
ACE LIMITED (ACE): Free Stock Analysis Report
XL GROUP PLC (XL): Free Stock Analysis Report
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