American Financial Group CEO Discusses Q3 2010 Results - Earnings Call Transcript
American Financial Group (
)
Q3 2010 Earnings Call
November 2, 2010 11:30 am ET
Executives
Keith Jensen - Senior Vice President
Carl Lindner III - Co-CEO
Craig Lindner - Co-CEO
Analysts
Amit Kumar - Macquarie Research Equities
Jay Cohen - Bank of America Merrill Lynch
Presentation
Operator
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American Financial Group, Inc. Q3 2009 Earnings Call Transcript
Good morning. My name is [Cassandra] and I will be your conference operator today. At this time, I would like to welcome everyone to the American Financial Group 2010 third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. Now I would like to turn the call over to Keith Jensen, Senior Vice President. You may begin.
Keith Jensen
Thank you very much. Good morning and welcome to American Financial Group's 2010 third quarter earnings results conference call. I'm joined this morning by Carl Lindner III and Craig Lindner, Co-CEO's of American Financial Group. If you are viewing the webcast from our website, you can follow along with the slide presentation if you'd like.
Certain statements made during this call are not historical facts and may be considered forward-looking statements and are based on estimates, assumptions and projections, which management believes are reasonable, but by their nature subject to risks and uncertainties.
The factors which could cause actual results and/or financial conditions to differ materially from those suggested by such forward-looking statements include, but are not limited to those that are discussed or identified from time to time in AFG's filings with the Securities and Exchange Commission, including the annual report on Form 10-K and the quarterly report on Form 10-Q.
We do not promise to update such forward-looking statements to reflect actual results or changes in assumptions or other factors that could affect these statements. Core net operating earnings is a non-GAAP financial measure, which sets aside items that are generally not considered to be part of ongoing operations, such as net realized gains or losses on investments, the effects of accounting changes, discontinued operations, significant asbestos and environmental charges and certain other non-recurring items.
AFG believes this non-GAAP measure to be a useful tool for analysts and investors in analyzing ongoing operating trends and will be discussed for various periods during this call. A reconciliation of net earnings attributable to shareholders to core net operating earnings is included in our earnings release.
Now, I am pleased to turn the call over to Carl Lindner III to discuss our results.
Carl Lindner III
Good morning and thank you for joining us. We released our 2010 third quarter results yesterday afternoon. Our overall core operating earnings are excellent and we're making solid progress towards our operations goals for 2010.
I'm assuming that the participants on today's call reviewed our earnings release and the supplemental materials posted on our website. I'll review a few highlights and focus today's discussion on key issues. I'll also discuss our outlook for the remainder of 2010. Let's start by looking at our 2010 third quarter results summarized on slides 3 and 4 of the webcast.
Net earnings were $1.21 per share for the third quarter. Realized gains related to AFG's non-agency residential mortgage backed securities from the sale of a portion of our common stock, investment in [de-risk] analytics were partially offset by a goodwill write-off relating to a marketing subsidiary and our supplemental insurance operations. I'll talk more about each of these transactions later.
Our third quarter core net operating earnings were $117 million, down 6% from the record prior year period. Core net operating earnings per share were $1.07 in each year as a result of share repurchases in 2010. These results reflect improved earnings in our annuity and supplemental insurance operations which were more than offset by lower property and casualty underwriting profit and lower investment income in our property and casualty operations.
Core net operating earnings for the third quarter and first nine months include approximately $15 million in after-tax income related to the ceding of unearned premium and certain runoff automotive related lines of business and certain real estate transactions.
Annualized nine month core operating return on equity for 2010 was approximately 11%. One of our important strategic objectives is to deploy our excess capital in a way that enhances shareholder value. To that end, we purchased $1.7 million shares of our common stock at an average price of $29.11 per share during the third quarter of 2010.
To provide context, the total shares repurchased in the first nine months of 2010 represent about 6% of AFG's outstanding shares at the beginning of the year. The average price of shares repurchased during the first nine months of 2010 was $27.30 per share. We believe the purchase of shares below book value is an appropriate means of increasing shareholder value.
In August 2010 our board of directors increased our share repurchase authorization by 5 million shares. At the end of the third quarter there were 5.6 million shares remaining under our current repurchase authorization.
During the third quarter we announced an increase in AFG's annual dividend from $0.55 to $0.65 per share of common stock. The new dividend rate effective with last week's quarterly payment represents an 18% increase over the annual rate paid earlier in 2010. We believe that this increase clearly reflects our confidence and the company's strong financial condition and liquidity as well as its prospects for long-term growth. This is the sixth consecutive year that we've announced an increase in our dividend.
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