USF&G's operating earnings rose 475% CEO says results are strongest since restructuring began

EARNINGS

April 29, 1993|By David Conn | David Conn,Staff Writer

USF&G Corp., a Baltimore-based insurance company, reported a nearly fivefold increase yesterday in first-quarter operating earnings over a year ago.

Still, the company's stock price fell nearly 5 percent, partly because of doubts about future earnings and partly because of the advance work USF&G has done in the past few weeks in spreading the news about the positive quarterly results.

For the three months that ended March 31, USF&G earned $61 million, or 58 cents a share, after paying preferred stock dividends. However, the company said, $38 million of that income was because of one-time accounting changes.

Absent those changes, the company earned $23 million, or 13 cents a share, a 475 percent increase over earnings of $4 million, which became a 9-cents-a-share loss after preferred stock dividends, in the first quarter of 1991.

USF&G's financial problems surfaced in 1990, when it lost $569 million, followed by a $176 million loss in 1991. But after a wrenching downsizing that included a 41 percent reduction in employees, the insurer earned $28 million last year.

"Our 1993 first quarter is, by far, the most promising performance since we began our restructuring in late 1990," Chairman and Chief Executive Officer Norman P. Blake Jr. said in a statement.

"Our strong operating performance was even more impressive considering it included catastrophe losses of $30 million that were primarily due to the March blizzard that affected 24 states."

The higher earnings also came despite a 7 percent drop in total revenues, to $875 million. USF&G has been withdrawing from unprofitablemarkets, such as Louisiana and Texas, and product lines, such as workers compensation insurance, for two years.

"The whole thrust of the company is different," said Alex. Brown & Sons analyst Ira H. Malis. A company that used to indulge its independent agent force, regardless of the agents' profitability or the economic conditions of their home states, has taken a much harder line, he said.

"What you're seeing more is they're saying, 'We have to protect our shareholders, and we're not going to subsidize bad regulation,' " Mr. Malis explained.

He said Alex. Brown likely would raise its 1993 earnings estimate to 50 cents a share today, from 35 cents. But it will lower the 1994 estimate to $1.25, about the middle of the scale of earnings predictions, from $1.90, Mr. Malis said.

USF&G's stock closed yesterday at $17 a share, down 87.5 cents in trading on the New York Stock Exchange.

Although the 13-cents-a-share operating profit, which includes 1 cent a share in investment gains, exceeded initial expectations by about 7 cents a share, the results were no surprise to Wall Street because Mr. Blake had unveiled them a week ago in a meeting with analysts.

The stock also might have reacted to a New York Times story yesterday that questioned USF&G's ability to improve its

earnings much further without a general price rise in property/casualty insurance premiums.

"It looks like [prices] have bottomed, but we'll see," Mr. Malis said. "We've had false starts before."

USF&G Corp.

..Ticker.. .. .. .. .. .. .. .. .. Yesterday's ..Symbol.. .. .. .. .. .. .. .. .. Cls.. ..Chg.

.. ... .. .. .. .. .. .. .. ..17.. .. - 7/8

Period ended

March 31 .. .. .. .. .. .. ..1st qtr.. .. .. Year ago .... Chg.

Revenue .. .. .. .. .. .. ..$875,000.. .. .. $941,000 ....-7.0%

Net Income .. .. .. ... .. .$61,000*. .. .. .$4,000 .. .. +1,425%

Primary EPS .. .. .. .. .. .. $0.58*. .. .. .$(0.09).. .. . --

Figures in thousands (except per share data.)

* Includes $38 million, or 45 cents a share, in net gains from one-time accounting changes.

Potomac Electric Power Co.

..Ticker.. .. .. .. .... .. Yesterday's . Symbol.. .. .. .. .... .. Cls... ... ..Chg.

POM .. .. .. .. .. . .. ..26 1/4 .. .. .. .. +

Period ended

March 31 .. .. .. 1st qtr.. .. .. .. .. .. Year ago.... . .. Chg.

Revenue*.. ... .. $370,772.. .. .. .. .. $364,304 .. .. .. .+1.8%

Net Income.. .. ..$13,044 .. .. .. .. .. .$24,071** .. .. ..-45.8%

Primary EPS .. .. $0.08 .. .. .. .. .. .. ..$0.18** .. .. ..-55.6%

Figures in thousands (except per share data.)

* Includes income from nonutility subsidiary of $31 million and $38 million in current and year-ago periods, respectively.

Excluding a gain from accounting change, 1992 first quarter income was $8 million, or 4 cents a share.

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