Conseco Inc. beat profit expectations Wednesday, but its stock plummeted because the result came largely from a one-time gain on an investment.
The Carmel, Ind., insurance and consumer finance firm reported fourth-quarter operating earnings of 64 cents a share.
Analysts had expected 57 cents, according to First Call/Thomson Financial. However, about 38 cents a share of the reported figure came from a $115 million writeup of unrealized gains on Conseco's investment in Tritel Inc., a cellular phone company based in Jackson, Miss.
That is why the shares dropped, said analyst Colin Devine at Salomon Smith Barney. By 2:45 p.m., Conseco shares were at $15, off 4.76%, and the stock closed $15.125, down 62.5 cents.
Tritel went public in December, and its stock briefly skyrocketed above $35. "If you back that out, there was a considerable miss for the quarter in terms of estimates," Mr. Devine said. What's more, he noted, Tritel stock is down to $24, so he would expect that investment to have "some negative impact for this quarter."
But Conseco spokesman John Dolphin said, "The important thing is where [Tritel] is at the end of the quarter."
He said Conseco is "delighted" with its own performance, noting that the company saw record levels of insurance production and managed receivables in 1999. Mr. Dolphin also said the company increased its long-term-care insurance reserves in the fourth quarter.
"We built reserves in the quarter and still beat the Street estimates," he said.
Overall, fourth-quarter operating earnings fell 27%, to $213.7 million. Net income, hurt by a $39 million trading loss, fell 38% to $174.6 million, or 52 cents per share.
Three cents of the per-share operating earnings came from the last securitizations for which Conseco used gain-on-sale accounting, Mr. Devine said.
Last year Conseco said it planned to scrap the controversial accounting method practiced by Green Tree Financial Corp., the manufactured housing lender it bought in 1998. From now on, Conseco will recognize income from loans as it is collected, rather than estimating and booking the entire value when a loan is securitized, as Green Tree used to do.
Conseco's full-year operating earnings grew 2.6%, to $1.07 billion, or $3.23 per share. Profits more than doubled, to $962.1 million, or $2.89 per share.
But chairman Stephen C. Hilbert said in a statement that he agrees with expectations that the company's 2000 net income will fall to $2.80 per share.
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