Allstate Corp.’s fourth-quarter operating earnings sank, reflecting declining investment returns and continued difficulties in its homeowners insurance segment.
“We are not pleased with our financial results in what was an uneven quarter,” said Edward Liddy, chairman and chief executive of the Northbrook-based insurance giant. To widen profit margins, he noted, Allstate is bumping up the price of its insurance premiums and adopting new underwriting practices.
Although the latest quarter’s results topped Wall Street’s gloomy expectations, the company also underwhelmed investors with a low-end profit projection for 2002. Allstate shares fell 65 cents, or 2 percent, to $32.20, on the New York Stock Exchange.
“Allstate is not quite out of the woods, but signs of a rebound are becoming evident,” said Adam Klauber, an analyst with the Chicago-based investment bank Cochran, Caronia Securities LLC. On Wednesday, Klauber trimmed his 2002 earnings forecast for Allstate to $2.65 a share from $2.90, but reaffirmed his “buy (2)” rating on the insurer.
The St. Louis brokerage A.G. Edwards, meanwhile, responded to the profit report by reducing Allstate shares to “hold” from “buy.”
Allstate reported that fourth-quarter operating income, excluding charges, fell 36 percent, to $379 million, or 53 cents a diluted share, from $589 million, or 80 cents a share, a year earlier. Analysts had expected 46 cents per share, according to Thomson Financial/First Call.
Net income, including restructuring charges and realized capital losses, fell 52 percent, to $264 million, or 37 cents per share, from $547 million, or 74 cents per share, a year earlier. Revenue rose 2 percent, to $7.36 billion.
The latest quarter’s results included an after-tax $70 million restructuring charge to cover the consolidation of back-office operations and other cost-cutting measures.
Home-insurance claims for mold damage became a serious insurance industry problem in Texas last year, and in the latest quarter Allstate recorded $75 million in losses on such claims. Liddy noted that the company has changed its policies to ensure it isn’t obliged to pay for such claims in the future, but pointed out that it will take time for homeowner policies now in effect to be replaced.
Reflecting the effect of lower interest rates, Allstate’s investment income dipped 4 percent, to $1.18 billion.
Allstate said it expects per-share earnings in 2002 in the range of $2.50 to $2.70 a share, slightly below the $2.72 a share analysts had been anticipating.
For 2001, Allstate said operating earnings excluding charges fell 23 percent, to $1.58 billion, or $2.18 per share, from $2.04 billion, or $2.73 per share, in 2000. Revenue slipped to $28.86 billion from $29.13 billion.
Liddy said he remains confident the company’s efforts to bolster profitability will bear fruit, but cautioned “the improvement in our results will not begin to emerge until the latter part of 2002.”
In other earnings news:
– Billionaire financier Sam Zell’s Equity Residential Properties Trust reported fourth-quarter results that slightly exceeded Wall Street expectations, but the Chicago-based real estate investment trust cut its estimate for 2002 earnings.
Equity Residential said funds from operations increased nearly 5 percent, to $198.5 million, or 66 cents a share, from $189.5 million, or 64 cents a share, a year earlier. The results beat analyst estimates by a penny per share, First Call said.
Funds from operations–a widely used gauge of REIT profitability–is net income excluding gains or losses from property sales or debt restructuring, with added-back depreciation of real estate.
Net income, including one-time items, rose to $141.5 million, or 43 cents a share, from $126.3 million, or 37 cents a share, a year earlier, when fewer shares were outstanding.
Zell is chairman of Equity Residential, which said revenue edged up 1.4 percent, to $536.4 million.
The company said that FFO for 2002 would be between $2.52 and $2.60 a share, less than analysts’ average estimate of $2.65 per share. This is the second time the company, which is usually conservative in its outlook, has lowered its earnings guidance for 2002, raising concerns that the recession’s effects are worse than anticipated.
Traditionally, apartment building owners have benefited from an economic downturn because the number of renters who move out to buy homes usually drops. But occupancy rates have fallen during the current combination of low mortgage rates and economic decline.
“The apartment industry will show negative growth this year as it struggles to absorb the product that was started last year and deals with an increasing unemployment scenario,” Chief Executive Douglas Crocker II said in a conference call.
Equity Residential shares fell 84 cents, or 3.1 percent, to $26.14 on the NYSE.
