, the nation's largest disability insurer, is starting to look a little disabled itself.
The embattled Tennessee insurance company missed Wall Street expectations, slashed its dividend and weathered a credit downgrade -- all in a single day. UnumProvident shares plunged on the news, sinking 19% to $10.06 in heavy trading Friday.
The latest blows interrupted a recent recovery rally in UnumProvident shares. Prior to Friday's news, the stock had managed to more than double off multiyear lows set last month.
The stock began sliding early this year, diving below $6 in March over concerns about the company's financial strength following deep losses in junk-bond investments. Now the company -- which recently ousted its CEO and restated three years' worth of results -- is faced with the possibility of becoming junk-rated itself.
After Friday's earnings miss, Standard & Poor's cut UnumProvident's credit to one level above junk and warned that two more cuts could follow if the company fails to raise $900 million in May to shore up its balance sheet. S&P also questioned UnumProvident's ability to deliver on new earnings targets that were cut Friday due to unfavorable business trends.
The company, which hiked its reserves for long-term disability payouts, has been accused of employing a business model designed to intentionally dodge payment of legitimate claims. It recently weathered two big jury losses and paid a record-setting fine in Georgia. It continues to face hundreds of pending lawsuits from unhappy policyholders, as well as multiple state investigations.
While it has admitted no wrongdoing, UnumProvident has nevertheless vowed to change its ways. In the past month alone, the company has ousted CEO Harold Chandler -- who managed to float out on a $17 million parachute -- and settled concerns raised by the
Securities and Exchange Commission
with a $29 million restatement of past results. UnumProvident followed up on Friday with additional plans meant to strengthen the company going forward.
"The actions announced today are designed to increase our financial strength and reflect a more conservative approach to the business," said Thomas Watjen, the former COO who's temporarily filling the top spot until a permanent replacement can be found. "In doing so, we are confident we will produce more predictable results for our shareholders."
For now, UnumProvident is struggling with a big miss. Excluding massive charges -- which pushed the company to a first-quarter loss of $245 million, or $1.02 a share -- UnumProvident reported quarterly profits that fell well short of both last year's results and Wall Street's expectations. First-quarter profits came in at only 44 cents a share, sharply below the 62 cents delivered last year and the 58 cents analysts polled by Thomson/First Call were anticipating.
Overall, big charges carried UnumProvident deep into the red. A hike in reserves took the biggest bite out of the bottom line. The 6.2% jump in reserves, taken after a review showed unfavorable patterns in recovery rates, cut first-quarter earnings by $295 million or $1.22 a share. The company also lost $57.6 million, or 24 cents a share, on investments in the quarter. And it shelled out another $9.8 million, or 4 cents a share, for the former CEO's severance.
UnumProvident coupled news of its first-quarter losses with plans to raise and conserve cash going forward. It expects to issue $400 million worth of stock and $500 million worth of convertible securities next month to pay down debt. It also cut its annual dividend by nearly half, from 59 cents to 30 cents. And it took steps to reduce its exposure to risky investments, which triggered recent losses, by selling $760 million worth of junk bonds.
At the same time, it warned that it can no longer approach its original full-year profit targets. The company now expects to deliver 2003 profits of $1.70 to $1.80 share instead of the $2.13 Wall Street was expecting. The company boasted profits of $2.53 in 2002. Its stock is down 43% for the year.