Crawford & Co. Reports Fourth Quarter 2005 Results; ‘Cautious’ About 2006

Atlanta-based Crawford & Company has announced its financial results for the fourth quarter ended December 31, 2005. Fourth quarter 2005 revenues before reimbursements totaled $216.9 million compared with $205.8 million in the 2004 fourth quarter. Fourth quarter 2005 net income was $6.0 million compared to $7.7 million for the 2004 fourth quarter. Fourth quarter 2005 net income per diluted share was $0.12 per share compared to $0.16 in the prior-year quarter.

U.S. revenues before reimbursements were $145.2 million in the fourth quarter of 2005 compared with $135.8 million in the 2004 fourth quarter. Revenues from the insurance company market were $70.0 million in the 2005 fourth quarter compared with $76.7 million in the 2004 period, which reflects a $4.4 million decline in catastrophe-related revenues from the 2004 period. Revenues from self-insured clients were $37.0 million in the 2005 fourth quarter compared with $38.0 million in the 2004 quarter. Class action services revenues were $38.2 million for the 2005 fourth quarter, compared with $21.1 million in the comparable year-ago quarter. The Company’s class action services unit generated record revenues in the 2005 quarter related to several major securities class action projects; however, these revenues are project-based and can fluctuate significantly.

Fourth quarter 2005 international revenues before reimbursements grew to $71.7 million from $70.1 million for the same period in 2004. During the 2005 fourth quarter, the U.S. dollar weakened against the British pound and the euro, resulting in a net exchange rate benefit in the quarter. Excluding the benefit of exchange rate fluctuations, international revenues would have been $71.1 million in the 2005 fourth quarter, reflecting growth in revenues on a constant dollar basis of 1.5 percent. This growth reflects increased case referrals in our United Kingdom and European operations resulting from claims management agreements entered into during 2004 and 2005, partially offset by lower storm- related revenues in the Caribbean during the 2005 period. International operating expenses increased by $4.5 million in U.S. dollars, a 7.0 percent increase, and by 6.0 percent on a constant dollar basis.

“Our fourth quarter 2005 results in the U.S. reflected a continued strong performance by our class action services unit, which posted record quarterly revenues,” Thomas W. Crawford, CEO said. “However, these results were partially offset by revenue declines within our U.S. catastrophe unit which had stronger hurricane-related results in the 2004 fourth quarter as compared to the current year’s result.”

Crawford said the company continues to face challenges in the U.S. property and casualty market, as reflected by a decline in its U.S. operating margin from 5.2 percent in last year’s fourth quarter to 4.7 percent in the current quarter. This decrease is due to declining claim referrals in the current quarter and our decision to maintain our existing service capabilities in our U.S. field operations as it continues to focus on growing market share in two primary U.S. markets.

Crawford said the company made two key organizational changes in the fourth quarter which should greatly improve the client services and lead to significant opportunities for revenue growth.

“We have combined our global property and casualty operations to maximize consistent service delivery and ensure that Crawford provides standardized business practices to all of its worldwide property & casualty clients,” Crawford explained. “In addition, we recently unveiled Crawford Integrated Services, a new claims management process that was developed specifically to solve the most pressing issues facing the workers’ compensation industry: increasing workers’ compensation costs, quality of care concerns, lack of consistency in adjudicating claims, and return-to-workplace productivity. We expect to see significant reductions in both costs and claims duration for our corporate clients.

“We realized revenues related to hurricanes Katrina, Rita and Wilma of approximately $21.8 million during the fourth quarter of 2005 and expect revenues related to these storms of approximately $8.0 million in 2006, primarily in the first quarter,” he said. “Within our class action services unit, we continue to have a strong backlog of projects, totaling approximately $40.0 million at quarter end.

Crawford saw its operating earnings in the international segment declined to $3.3 million in the current quarter, reflecting a decrease in its operating margin from 8.8 percent in the 2004 fourth quarter to 4.6 percent in the 2005 quarter.

“This decline is primarily due to a lack of storm-related claim activity in our Caribbean region during the 2005 quarter as compared to the 2004 period,” Crawford said. “However, both our operating earnings and the resulting margins improved over those reported in the 2005 third quarter. We have been very pleased with the record revenues and operating results generated by our international division this year and expect continued strong performance from this unit in 2006.”

Total revenues before reimbursements for the year ended December 31, 2005 were $772.0 million compared with $733.6 million in 2004. Net income for the year totaled $12.9 million, or $0.26 per share, compared with $25.2 million, or $0.51 per diluted share, reported in the prior year. During the 2004 second quarter, the Company settled a tax credit refund claim with the Internal Revenue Service which increased net income by $2.8 million, or $0.06 per share. Net income in the 2004 third quarter included a special credit of $5.2 million, net of related income taxes, or $0.11 per share, resulting from the sale of an undeveloped parcel of real estate.

U.S. revenues before reimbursements for the 2005 annual period were $486.6 million compared with $478.1 million in 2004. International revenues before reimbursements were $285.4 million in 2005 compared with $255.4 million during 2004. Excluding the benefit of exchange rate fluctuations, international revenues would have been $274.3 million in the current year, reflecting growth in revenues on a constant dollar basis of 7.4 percent. International operating expenses increased by $28.2 million in U.S. dollars, an 11.6 percent increase, and by 7.2 percent on a constant dollar basis.

“Our operating cash flows for the 2005 full-year period reflect an improvement of $4.1 million as compared to the prior year,” Crawford said. “This improvement is primarily due to the collection of accounts receivable generated from the hurricane-related claims administered in 2004 and 2005 and improved collections within our class action services unit. Overall, our consolidated cash position as of December 31, 2005 is strong, totaling $49.4 million, up $5.9 million from the $43.6 million reported at December 31, 2004 after considering $8.0 million in net payments on outstanding borrowings during 2005.

“Our outlook for 2006 remains cautious,” Crawford concluded. “Recognizing that 2005 revenues include storm-related activity which may not reoccur in 2006, our expectations for continued growth in our international operations are offset by anticipated declines in U.S. catastrophe revenues. We expect to see increased margin performance internationally driven by improved volumes, but believe that increased pension costs, due to lower long- term interest rates used to discount our pension liability, and expenses associated with the deployment of RiskTech, our new claims management system, may affect our ability to expand our U.S. operating margin in 2006.”

Topics USA Profit Loss Claims Property Casualty