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CNO Income

Bryan Ives / MEDILL

CNO Financial's net income has proven volatile in recent quarters

Debt repayment drags down CNO Financial earnings

by Bryan Ives
Apr 25, 2013

CNO Financial Group Inc., hurt by substantial one-time refinancing costs, reported sharply lower first quarter earnings after markets closed Wednesday.

In the quarter ended March 31, 2013, net income for the Carmel, Ind. based life and health insurance company plunged 80 percent to $11.9 million, or 5 cents per diluted share, from $59.1 million, or 21 cents per share, in the year-ago quarter.

Revenues increased to $1.14 billion from $1.12 billion..

Earnings suffered in large part due to a net $57.2 million charge, linked to early repayment of debt, that reduced earnings by 16 cents per share.

Despite the big drop in net income, CNO’s underlying profits modestly topped Wall Street forecasts.

Net operating income increased 22 percent to $49.7 million, or 21 cents per diluted share from $40.6 million, or 15 cents per share, in first quarter 2012.  Analysts surveyed by Bloomberg had expected net operating income to be 20 cents per share.

“All in all, we view the quarter as in line,” Sean Dargan, an analyst at Macquarie Capital Inc. said in a an  earnings note. But, he added, excluding a onetime negative adjustment at the company’s Bankers Life unit, “we estimate ‘normalized’ operating earnings per share was 23 cents.”

The company’s recent profits have been helping bolster the company’s capital position, CEO Edward J. Bonach said on Thursday.

“This capital strength is even more impressive given the recently tender offer for our outstanding convertible debentures” the executive added.

CNO operates as the parent company to Bankers Life, Washington National and Colonial Penn insurance companies. According to Bonach, the rise in net operating income and revenues are a result of devoting resources to the three subsidiaries.

“We continue to invest in our businesses by increasing marketing, expanding our geographic reach and launching several new products,” Bonach said.

CNO’s agent force grew by 4 percent in the first quarter thanks to improved retention and productivity,  CNO said, and sales for life insurance products climbed by a solid11 percent.

Additionally, Critical Benefit, a critical illness product introduced by Bankers Life in mid-2012  generated nearly $3 million in sales in the first quarter, which is more in sales for the product than in all of 2012 according to Chief Business Officer Scott Perry.

“We expect this positive trajectory to continue as we roll this product out to several large states, including California and New York, over the remainder of the year,” Perry said.

CNO intends to open 25 new Bankers Life locations in 2013, which will increase the subsidiary’s outlets to 300. “We expect positive momentum to carry forward as the new locations we opened the last two years ramp up to full productivity,” Perry said.

Going forward, CNO said it intends to  continue to grow its overall business from within, through new products and locations. CNO expects to spend $80-85 million in “strategic business initiatives” over the next three years according to Bonach.

In NYSE trading Thursday, CNO shares closed down 8 cents, to close at $11.10.