Progressive: Earnings Preview

Oct.12.09 | About: Progressive Corporation (PGR)

Progressive Corp. (NYSE:PGR) is expected to release its third quarter results before the market opens on Oct 14. The Zacks Consensus Estimate for this stock is 33 cents per share. In the prior-year period, the company had reported earnings of 31 cents per share.

Progressive’s earnings for August were impressive as the company benefited from an increase in premiums written and steered clear of investment losses. The company, which reports earnings on a monthly basis, posted a profit of $55 million, or 8 cents per share, compared to a loss of $135.2 million, or 20 cents, a year ago. However, the Commercial Auto segment still remained a drag.

For July, earnings came in at 17 cents per share, significantly up from 12 cents per share reported in the year-ago period. Results reflected investment gains and favorable prior-period reserve releases. For July, Progressive experienced $37.3 million of total favorable prior accident year reserve development, primarily in its personal and commercial auto products.

Growth remains a challenge at Progressive’s Commercial Auto business. Economic downturn combined with increased competition has badly affected both of these markets. The Commercial Auto business continues to be negatively impacted by the downturn in the economy, primarily in the housing and construction sectors.

Like Progressive, other auto insurance providers such as Allstate Corp. (ALL), Infinity Property and Casualty Corp. (NASDAQ:IPCC) and State Auto Financial Corp. (STFC) have struggled against the weak economy, which has significantly hampered consumers' confidence and their ability to purchase automobile insurance policies. Additionally, the U.S. auto insurance industryhas been subject to unusually high expenses due to fraudulent activities.

Nevertheless, we expect Progressive to benefit from the recent signs of economic improvement and from indications of an increase in auto insurance rates. Also, Progressive enjoys a number of advantages, including an industry-leading position, strong risk-based capital ratios, underwriting margins and stability, and the benefits of its cost-containment measures. Therefore, we have a Neutral recommendation on its shares.