WeakeningIn the fourth quarter, Conseco reported operating earnings of 10 cents a share, compared with 18 cents in the third quarter and 13 cents in the year-earlier period. Insurance earnings dipped slightly from the previous quarter, but it was Conseco Finance, the lending operation, that made the poorest showing. Across Conseco's loan portfolio, delinquencies rose, forcing Conseco to boost its loan loss reserve. And the profit margin on loans (made since an important accounting change in 1999) actually dropped in the fourth quarter, to 4.75% from 4.86% in the third. (Admittedly, another margin measure went up over the same period, but only very slightly.)
|Off Peak |
Conseco's rise and fall
Wendt gave startlingly bad earnings guidance for 2002 of 60 cents to 70 cents a share, and this is excluding goodwill amortization expenses, which companies no longer need to deduct. If Conseco makes 65 cents a share this year, it would work out to an average of 16 cents a share each quarter, which is worse than the 18 cents a share earned (without goodwill amortization) in the fourth quarter. The CEO gave little explanation of why earnings would be so poor in 2002. There are two main reasons one can think of for the pathetic profits projection, and neither reflects well on Conseco. The first is that past-due loans are soaring; when debtors don't pay, creditors don't collect and have to keep bolstering their loan loss reserve. Second, Conseco is planning to reinsure a large chunk of its insurance business to raise cash to meet debt payments. But when it does this, it essentially forgoes earnings from those businesses it has reinsured.