Fortegra Financial Misses on Q4 Earnings, Guides 2014 - Analyst Blog

Fortegra Financial Corporation (FRF) delivered operating net income of 17 cents per share in the fourth quarter of 2013, which lagged the Zacks Consensus Estimate by 6 cents. Earnings were 10% lower than 19 cents earned in the year-ago quarter.

A higher level of expenses induced the lower earnings in the reported quarter.

Including gain on sale of assets of 46 cents, net income came in at 62 cents, surging from 18 cents earned in the prior-year quarter.

For full-year 2013, operating net income came in at 57 cents on revenues of $91.5 million. While the top line improved 35.7%, earnings moved down by 10.9% on a year-over-year basis.

Behind the Headlines

Fortegra Financial generated total revenue of $92.5 million, up 45.4% year over year. The outperformance was driven by higher service and administrative fees, increase in ceding commissions, net earned premium as well as other income.

Net revenue improved 25.6% year over year to $28.2 million in the quarter.

Direct and assumed written premiums written improved 17.6% year over year.

Operating expenses of Fortegra Financial rose 32.2% year over year to $19.1 million. The increase was attributable to operating expenses associated with the ProtectCELL and the 4Warranty acquisition.

Adjusted Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) increased 9.3% year over year to $9.6 million with adjusted EBITDA margin contracting 510 basis points to 33.9%.

Financial Details

Fortegra Financial exited the quarter with total investments and cash and cash equivalents of $160.5 million, up from $133.3 million at the end of 2012.

Total debt decreased to $38.3 million at the end of the quarter from $124.4 million at the end of 2012.

As on Dec 31, 2013, the company had $75 million available on primary revolving credit facility.

Fortegra Financial managed to lower its debt by $77.5 million, strengthening its balance sheet and improving its financial flexibility owing to the disposition of brokerage.

Portfolio Update

Fortegra Financial divested Bliss & Glennon, Inc. and eReinsure.com, Inc. to AmWINS Holdings, LLC for gross proceeds of $83.5 million. The divestment resulted in a gain on the sale amount.

Fortegra Financial also acquired ProtectCELL and 4Warranty.

Fortegra Financial believes these reorganizations will enhance its business focus and add efficiency to its operations.

Outlook

Fortegra Financial noted that the decision of one of its major competitor to exit the segment of the payment protection market has created a considerable market opportunity for it. The company is already working to capture the market and expects to have $50 million to $60 million in new premium in 2014. They envision the number to increase further in the long term.

The company remains focused on enhancing its sales force, increasing brand recognition and improving its operational efficiency.

Fortegra Financial estimates revenue growth of 7% to 9% and EBITDA margins of 32% to 34% in 2014.

Performance of Other Multi¬ Line Insurers

American International Group Inc. (AIG) reported fourth-quarter 2013 operating earnings per share (EPS) of $1.15, which remarkably outpaced the Zacks Consensus Estimate of 96 cents and the year-ago quarter figure of 22 cents.

Assurant Inc.’s (AIZ) fourth-quarter operating income of $1.42 per share edged past the Zacks Consensus Estimate by a penny. Earnings zoomed up 20 times year over year owing to nil reportable catastrophe losses during the quarter.

Assured Guaranty Ltd. (AGO) delivered operating net income of 73 cents per share in the fourth-quarter of 2013, surpassing the Zacks Consensus Estimate of 66 cents by 10.6%. However, earnings slid 23.2% from the prior-year quarter number.

Zacks Rank

Fortegra Financial carries a Zacks Rank #3 (Hold).

ASSURED GUARNTY (AGO): Free Stock Analysis Report

AMER INTL GRP (AIG): Free Stock Analysis Report

ASSURANT INC (AIZ): Free Stock Analysis Report

FORTEGA FIN CP (FRF): Free Stock Analysis Report

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