American Financial (AFG) Beats on Q1 Earnings & Revenues

American Financial Group, Inc.'s AFG first-quarter 2017 net operating earnings per share (EPS) of $1.69 surpassed the Zacks Consensus Estimate of $1.37 by 23.4%. Further, the bottom line improved about 35.2% year over year. Notably, the company’s first-quarter net operating EPS of $1.69 marked a record first quarter for American Financial’s core quarterly EPS.

The year-over-year growth in the bottom line can be attributed to higher operating earnings at Specialty Property and Casualty (P&C) insurance segment and a significant increase in operating earnings in the Annuity segment.

Including realized gains of 3 cents, net income per share soared 50.9% year over year to $1.72. Notably, this is a new record for American Financial’s first quarter.

Behind the Headlines

Total operating revenue of $1.5 billion rose 4.2% year over year. The top-line growth can be attributed to higher net investment income, P&C insurance net earned premiums as well as other income. Moreover, the top line outpaced the Zacks Consensus Estimate of $1.2 billion by 31.9%.

Net investment income of $435 million grew 5.8% year over year.

American Financial's total cost and expenses of $1.4 billion inched up 2.6% year over year. Higher losses and expenses in the P&C segment, costs of managed investment entities, interest charges on borrowed money, and other expenses resulted in the overall increase in expenses.
    
Segment Results

Specialty P&C generated $1 billion in net premiums written, up 4.9% year over year. Increase in net premiums written in the Property & Transportation (up 4.2%), Specialty Casualty (4%) and Specialty Financial (12.8%), on a year-over-year basis, resulted in the improvement.

Underwriting profit of the segment fell 8.1% to $79 million. Lower underwriting profit at Specialty Casualty and Specialty Financial Groups led to the downside. Moreover, results at these two segments more than offset higher underwriting profit at the Property and Transportation segment. The segment's combined ratio deteriorated 90 basis points (bps) year over year to 92.2% due to 270 bps and 240 bps deterioration in combined ratios in Specialty Casualty and Specialty Financial segments, respectively.

The Annuity segment reported $1.3 billion in total premiums written, up 0.4% year over year.

Financial Update

As of Mar 31, 2017, American Financial had cash and investments of $43.4 billion, up 4.6% from the 2016-end level of $41.4 billion.

Long-term debt of $1.3 billion remained flat with the 2016-end level. As of Mar 31, 2017, the company’s book value per share (excluding unrealized gains/losses on fixed maturities) was $54.98, up 3.5% from the 2016-end level.

In the reported quarter, the company reported return on equity (ROE) of 13.3% compared with 9.4% in the prior-year quarter.

Dividend Update

In the quarter under review, the company’s board of directors declared a special cash dividend of $1.50 per share. The dividend will be paid on May 25, to shareholders on record as of May 15, 2017. The total amount of the special dividend came in at about $132 million. This apart, the board declared a quarterly dividend of 31.25 cents per share.

Business Update

In Mar 2017, American Financial sold a hotel property in Cincinnati, which was owned and managed by a subsidiary of Great American Insurance Company. As a result, the American Financial realized an after-tax gain of $7 million, which is recorded as “Other Income” and is included in Specialty P&C core operating earnings.

2017 Guidance

American Financial projects core net operating earnings per share in the range of $6.20–$6.70.

American Financial Group, Inc. Price, Consensus and EPS Surprise

 

American Financial Group, Inc. Price, Consensus and EPS Surprise | American Financial Group, Inc. Quote

Zacks Rank

American Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other P&C Insurers

Among other players from the same space that have reported their first-quarter earnings so far, the bottom line at The Progressive Corporation PGR, The Travelers Companies, Inc. TRV and RLI Corp. RLI missed their respective Zacks Consensus Estimate.

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