• Progressive is down about 8% from all-time highs ahead of Q2 results
  • Wall Street expects Q2 EPS of $1.73
  • Q2 revenue expected at $9.72 billion
  • Progressive Corp poised to pay a $0.10 dividend having affirmed buybacks

Progressive Corporation (NYSE: PGR) is scheduled to report its second-quarter earnings results on July 15, 2021, before the market opens. The earnings report comes on the heels of a disappointing first-quarter report that triggered a sell-off from 52-week highs.

Progressive Corp chart

While the stock has bounced back after a steep pullback, it is still down by about 8% from all-time highs ahead of the Q2 report. The insurer holding company heads into Q2 earning season, having seen its profitability come under pressure in Q1 due to an increase in insurance claims.

However, its combined ratio, which is a measure of profitability in the industry, improved to 93.1% in May from 93.7% in May of last year and 96% in April. A combined ratio of less than 100% indicates that the insurer is underwriting profitable policies. A ratio of over 100% means an insurer is losing money on its policies.

Q2 earning expectations

Wall Street expects the insurer holding’s company to report $1.73 a share, representing a 4.2% year-over-year increase. In the first quarter, earnings per share were down 10.4% year over year to $1.72, missing consensus estimates of $1.78

Over the past two years, Progressive Corp has beaten earnings per share estimates 88% of the time. Consequently, there is a high probability that the company will top EPS estimates with Q2 numbers.

Q2 earning expectations

On the other hand, revenue is expected at $9.72 billion, representing a 2.9% year-over-year increase. Likewise, the company has beaten revenue estimates 63% of the time, which signals high chances of Q2 revenue numbers topping estimates.

Expenses might have increased in the second quarter on higher loss and loss adjustment expenses. Policy acquisition costs and other costs underwritten might also have eaten into the company’s bottom line.

What to look for

When Progressive Corp reports, the focus will be on whether premiums benefited from the company’s leading position in the Vehicle and Property business. Retention rates and competitive rates will also be on focus.

When the company reported its May financials, net premiums written and net premiums earned were up 7% and 13%, respectively. Policies in force were up 11% to $26.2 billion from last year. However, net income for the month was down 7%, attributed to a 31% decline in realized gains.

Additionally, the focus will be on investment income. A near-zero interest rate environment has taken a significant toll on companies with operations in the financial sector. Consequently, investment income is expected at $207 million, representing a 57.3% improvement from last year.

Last year, Progressive Corp saw a significant increase in net realized gains from the sale of its US Treasuries and gains for the equity portfolio. Therefore, investment gains are not expected to be much this year, as was the case last year.

Recent developments

Progressive Corp has confirmed the completion of the Protective Insurance corporation acquisition for $338 million in the recent past. With the acquisition, the company gains access to a valuable property-casualty insurer specializing in trucking and transportation fleets.

Protective insurance had a tough 2020 net premiums that were down 2.5% to $441 million, as net income fell 39% to $4.4 million.

Dividend and buybacks

Progressive Corp will pay a $0.10 common share quarterly dividend on July 15, 2021, to shareholders of record at the close of business on July 7, 2021. The company boasts of a 0.40% forward annual dividend yield.

The board of directors has also authorized the repurchase of up to 25 million shares of common stock. The authorization does not have an expiry date.

Bottom line

Progressive Corp will report its second-quarter results after a roller-coaster first half of the year that saw the stock rally to record highs before coming under pressure on a disappointing Q1 earnings report. Therefore, the Q2 report is likely to influence investors’ sentiments on the stock, which could see the stock breakout either up or down.