Mercury General Corp. (MCY) filed Quarterly Report for the period ended 2009-09-30.
Mercury General Corp. is engaged primarily in writing all risk classifications of automobile insurance in a number of states principallyCalifornia. The company offers automobile policyholders the following types of coverage: bodily injury liability underinsured and uninsured motorist property damage liability comprehensive collision and other hazards specified in the policy. Mercury General Corp. has a market cap of $2.03 billion; its shares were traded at around $37 with a P/E ratio of 19.2 and P/S ratio of 0.7. The dividend yield of Mercury General Corp. stocks is 6.3%. Mercury General Corp. had an annual average earning growth of 31.1% over the past 10 years. GuruFocus rated Mercury General Corp. the business predictability rank of 2.5-star.
Highlight of Business Operations:
The Company’s operating results have allowed it to consistently generate positive cash flow from operations, which was approximately $156.5 million and $72.6 million for the nine-month periods ended September 30, 2009 and 2008, respectively. Cash flow from operations has historically been used to pay shareholder dividends and to help support growth.
The income tax expenses (benefit) for the three-month periods ended September 30, 2009 and 2008 were $71.5 million and $(112.8) million, respectively. The increase in expense resulted primarily from changes in the fair value of the investment portfolio.
To improve profitability, during the three-month period ended March 31, 2009, the Company implemented several cost reduction programs, including a salary freeze, a suspension of the employee 401(k) matching program, and a workforce reduction of approximately 360 employees (7% of workforce) primarily located in California. As a result of the workforce reduction, an $8 million expense was recorded ($5 million to losses and loss adjustment expenses, $3 million to other operating expenses) during the three-month period ended March 31, 2009. The annualized cost savings from these cost reduction programs are expected to be over $20 million.
The income tax expenses (benefit) for the nine-month periods ended September 30, 2009 and 2008 were $161.4 million and $(102.4) million, respectively. The increase in expense resulted primarily from changes in the fair value of the investment portfolio.
Net cash provided from operating activities in the nine-month period ended September 30, 2009 was $156.5 million, an increase of $83.8 million over the corresponding period in 2008. This increase was primarily due to additional operating cash flows from AIS, decrease in losses and loss adjustment expenses and tax expenses paid during the nine-month period ended September 30, 2009 compared with the corresponding period in 2008. The Company has utilized the cash provided from operating activities primarily for the development of information technology such as the NextGen and Mercury First computer systems and the payment of dividends to its shareholders. Funds derived from the sale, redemption or maturity of fixed maturity investments of $391.3 million were primarily reinvested by the Company in high grade fixed maturity securities.
MCY is in the portfolios of Robert Rodriguez of FPA Capital, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, Richard Aster Jr of Meridian Fund.
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