USF&G earnings leap in 4th quarter

February 03, 1994|By David Conn | David Conn,Sun Staff Writer

USF&G Corp., the Baltimore-based insurer, yesterday reported sharply higher earnings in the fourth quarter, capping the company's first full year of positive results since 1989.

Quarterly earnings of $59 million, or 55 cents a share after paying preferred stock dividends, surpassed most analysts' expectations and compared with $13 million, or 1 cent a share, a year ago. The company's stock reacted strongly, rising $1.50 a share, to close at $15.375, on more than five times its normal daily trading volume.

But as USF&G's chief executive officer and some analysts pointed out, now that the retrenchment and healing are largely done, the company must find a way to do just the opposite:

thrive by growing.

"USF&G spent the last three years essentially contracting and repositioning to a strategically focused and profitable footing," Chairman, President and CEO Norman P. Blake Jr. said in a statement.

"Much effort is now being expended in strengthening our competitive capabilities and developing highly differentiated products and services in our insurance operations," he said.

During the fourth quarter, various one-time gains and tax adjustments added about $30 million to earnings. Profits from continuing operations amounted to $29 million, or 20 cents a share, compared with $14 million, or 1 cent a share a year ago. Wall Street analysts had expected quarterly operating earnings to come in at about 11 cents.

"The management team led by Norm Blake has done a very good job in the last few years," said Gerald Lewinsohn, an analyst at Merrill Lynch.

For all of 1993, the company earned $165 million, or $1.38 a share, compared with earnings of $28 million, or a loss of 24 cents a share after preferred stock dividends in 1992, a year that included $80 million in losses from Hurricane Andrew.

Absent various extraordinary gains and expenses, operating earnings last year were $96 million, or 56 cents a share, in contrast with a loss of $61 million, or $1.31 a share, in 1992.

The improvement came from the company's property and casualty operations. The much smaller life insurance segment fared slightly worse in both the fourth quarter and full year than in the comparable periods a year earlier.

The overall earnings gains followed three years of tough times for the company. USF&G lost $569 million in 1990 but managed to trim its losses to $176 million the next year. By 1992, despite a record amount of damage from natural catastrophes, including Hurricane Andrew, the company reported a small profit of $28 million, although largely from securities gains.

The turnaround came from cutting back on unprofitable lines of business, such as workers' compensation insurance; pulling back from costly states, such as Texas and Louisiana; and trimming its sales force of independent agents.

It also came at the cost of about 6,000 employees, as USF&G trimmed the work force by 48 percent since 1990, to its current level of 6,500.

The result is that the company is now making more money on lower sales. Premiums fell to $2.5 billion last year, 7 percent lower than 1992 and almost a third less than in 1990.

USF&G's stock price, meanwhile, has risen almost 70 percent in the past two years, not including the return from dividend payments.

"I think you can definitely say . . . that now that they've got several quarters of improvement under their belt, that Blake has really brought the company back from the brink," said analyst Ronald Frank, of Smith Barney Shearson.

But without an imminent rise in stagnant insurance industry prices, he added, "I think, going forward, the jury is still out on whether they can get to the next level."

USF&G Corp.

.. .. .. .. .. .. .. .. .. .. .Ticker .. .. .. .. .Yesterday's

.. .. .. .. .. .. .. .. .. .. .Symbol .. ...Cls... .. .. .Chg.

.. .. .. .. .. .. .. .. .. .. ..FG .. .. ...15 3/8 .. .. .. ...+1 1/2

Period ended

12/31/93 .. .. .. .. .. ..4th qtr. .. .. .Year ago .. .. Chg.

Revenue .. .. .. .. .. ...$799,000 .. .. .$802,000 .. ..-0.4%

Net Income .. .. .. .. .. .$59,000 .. .. ..$13,000 .. ..+354%

Primary EPS .. .. .. .. .. .$0.55* .. ... ..$0.01* ...+5,400%

.. .. .. .. .. .. .. ..12 mos. .. .. .. .Year ago .. .. .Chg.

Revenue .. .. .. .. .$3,249,000 .. .. ..$3,660,000 .. .-11.2%

Net Income .. .. .. ...$165,000 .. .. .. ..$28,000 .. ..+489%

Primary EPS .. .. .. .. .$1.38* .. .. .. .$(0.24)* .. .. ..--

Figures in thousands (except per share data.)

* Per-share earnings are based on income after deducting preferred stock dividends.

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