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Closer look at Kemper's results offers insight into share price drop

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Closer look at Kemper's results offers insight into share price drop

Kemper Corp. reported what seemed to be solid second-quarter earnings, but there was a story behind the numbers as its shares dropped sharply.

The company's stock price fell by as much as 12% before finishing the week down 7.9% at $79.51. The drop came despite Kemper's reporting second-quarter net income of $122.1 million, or $1.84 per share, up from $37.6 million, or 73 cents per share, in the second quarter of 2018.

Overall results for insurance stocks were mixed in the week to Aug. 9. The S&P 500 had a roller-coaster week, falling nearly 3% on Aug. 5 before recovering to a week-to-date gain by Aug. 8, but eventually finishing down 0.5% at 2,918.65. The SNL U.S. Insurance Index rose 0.5% to 1,089.07, and the S&P 500 Insurance index was up 0.8% to 432.15.

Sandler O'Neill analyst Paul Newsome said it was "a decent quarter" for Kemper "in a survey of the headline," but an item included in the company's 10-Q filed Aug. 5, and not mentioned during the earnings call, may have played a role in the selloff.

"There was a gain in a legal settlement that people knew about, and some of us had it in our earnings estimates and some of us did not," Newsome said. "If you pull that out, it was disappointing earnings relative to expectations."

Newsome said in his Aug. 5 note on the earnings call that the payment accounted for 24 cents of Kemper's second-quarter EPS of $1.38. Excluding that amount, core EPS would have been $1.14, short of Sandler O'Neill's $1.24 estimate.

The payment in question was a second installment on an arbitration award to Kemper unit Kemper Corporate Services Inc. that resulted from an action filed in October 2015 against Computer Sciences Corp., now a subsidiary of DXC Technology Co. Computer Sciences has appealed the $141.7 million arbitration award, but still made the two payments as partial satisfaction.

The first payment of $35.7 million was received in September 2018 and was reported in Kemper's 10-K filing for 2018. The second payment of $20.1 million, received in April, was booked in Kemper's condensed consolidated statement of income for the second quarter, according to the 10-Q.

The $20.1 million payment was not mentioned in Kemper's second-quarter earnings call Aug. 5. During that call, CEO Joseph Lacher said the company had "yet another quarter of strong financial and operational performance."

Kemper declined to comment on the 10-Q filing.

In the managed care sector, Molina Healthcare Inc. had a strong week, finishing up 4.0% at $134.44, and rising nearly 8.5% from an Aug. 5 close of $123.95.

Louisiana released its managed Medicaid re-procurement awards scorecard during the week, with AmeriHealth Caritas, a private company; Anthem Inc.; Humana Inc.; and UnitedHealth Group Inc. winning contracts. For the week, Anthem finished down 1.1% at $287.33, Humana was up 1.3% at $297.78 and UnitedHealth finished down 0.6% at $248.63.

Centene Corp., which lost its Medicaid contract in Louisiana, finished the week down 4.5% at $48.70.

It was a good week for eHealth Inc., which rose 7.9% to $109.31. The company's shares are up nearly 28% since the start of trading July 26.

Health Insurance Innovations Inc., which posted second-quarter adjusted net income of $9.9 million, or 71 cents per share, up from $8.9 million, or 53 cents per share, in the prior-year quarter, was down 0.8% on the week to $21.32. That, however, masked a degree of volatility, with the company's shares dropping 6% on Aug. 5 and then gaining 9% the next day to $22.04.

CNA Financial Corp., which recorded second-quarter net income of $278 million, or $1.02 per share, compared with $270 million, or 99 cents per share, in the year-ago quarter, finished up 2.4% at $48.20.

Life

Voya Financial Inc. logged second-quarter adjusted after-tax operating earnings of $229 million, or $1.52 per share, compared with $195 million, or $1.13 per share, in the prior-year quarter. It finished down 8.2% at $49.32 and has lost nearly 14% over the past two weeks.

Athene Holding Ltd. reported second-quarter adjusted operating income of $370 million, or $1.95 per share, up from $288 million, or $1.47 per share, in the second quarter of 2018. It finished up 3.2% at $39.85, despite falling just over 2% in Aug. 9 trading.

Brighthouse Financial Inc., which logged second-quarter adjusted earnings of $254 million, or $2.19 per share, compared with $153 million, or $1.27 per share, in the prior-year period, finished up 0.5% at $34.76, although it dropped 3.2% in Aug. 9 trading.