Kingsway Financial Services, Inc. :KFS-US: Earnings Analysis: Q1, 2017 By the Numbers : May 9, 2017

Kingsway Financial Services, Inc. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Kingsway Financial Services, Inc. – Progressive Corporation, Allstate Corporation, Mercury General Corporation and Infinity Property and Casualty Corporation (PGR-US, ALL-US, MCY-US and IPCC-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 45.26 million, Net Earnings of USD -1.59 million.
  • Year-on-year change in operating cash flow of -91.26% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline because of decline in operating margins after interest, despite positive contribution from unusual items

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 45.26 46 43.93 39.72 36.7
Revenue Growth (%YOY) 23.34 446.64 19.44 4.92 1.61
Earnings (mil) -1.59 -8.81 1.54 -1.64 -1.46
Earnings Growth (%YOY) -9.13 -302.19 290.47 82.5 -285.71
Net Margin (%) -3.51 -19.16 3.5 -4.12 -3.97
EPS -0.08 -0.43 0.06 -0.09 -0.08
Return on Equity (%) -10.99 -63.68 11.69 -14.13 -12.47
Return on Assets (%) -1.23 -7.21 1.81 -2.71 -2.31

Access our Ratings and Scores for Kingsway Financial Services, Inc.

Market Share Versus Profits

Revenues History
Earnings History

KFS-US‘s change in revenue this period compared to the same period last year of 23.34% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that KFS-US is holding onto its market share. Also, for comparison purposes, revenues changed by -1.61% and earnings by 81.97% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

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Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

Insurance companies sometimes tradeoff for improvements in premiums earned by relaxing standards in underwriting policies. A quick way to check against such activity is to compare the changes in loan loss provisions as well any chnages in the level of policy claims. If either of these checks point to a decline in the underwriting standards, it is quite possible that the company’s performance is a result of underwriting policy changes that could have a longer term impact compared to the shorter term pop in premiums earned.

Premiums Earned Percent History
Loss Ratio History

The company’s year-on-year decline in earnings has been influenced by the following factors: (1) Decline in premiums earned as a percent of total revenues from 80.19% to 72.74% and (2) issues with underwriting policies. As a result, loss ratio went from 79.85% to 80.22% in this period. For comparison, premiums earned as a percent of revenues were 72.65% and the loss ratio 103.14% in the immediate last period.

Premiums Earned Percent Versus Loss Ratio

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

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Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

KFS-US‘s change in operating cash flow of -91.26% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Margins

The company’s earnings fell largely because of the drop in operating margins after interest, which narrowed from -0.29% to -2.22%. This decline in earnings would have been even worse, except for the fact that the company had some one-time items that contributed to an improvement in pretax margins from -4.00% to -2.88%.

EBIT Margin Versus PreTax Margin

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Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Kingsway Financial Services, Inc.

Company Profile

Kingsway Financial Services, Inc. operates as a holding company which engages in the property and casualty insurance business. The company operates through two segments: Insurance Underwriting and Insurance Services. The Insurance Underwriting segment provides non-standard automobile and homeowners insurance to individuals. It offers personal automobile insurance to drivers who do not meet the criteria for coverage by standard automobile insurers. The Insurance Services segment includes the following subsidiaries: IWS Acquisition Corp. and Trinity Warranty Solutions LLC. The IWS Acquisition Corp. is a licensed motor vehicle service agreement company and is a provider of after-market vehicle protection services distributed by credit unions. The Trinity Warranty Solutions LLC provides warranty products and maintenance support to consumers and businesses in the heating, ventilation, air conditioning and refrigeration industry. Kingsway Financial Services was founded on September 19, 1989 and is headquartered in Toronto, Canada.

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