Crawford & Co. Reports Third Quarter Results; Hurricanes Reduced Income

Atlanta-based Crawford & Company, an independent provider of claims management solutions to insurance companies and self-insured entities, has announced its financial results for the third quarter ended Sept. 30, 2005.

Third quarter 2005 revenues before reimbursements totaled $184.7 million compared with $185.9 million in the 2004 third quarter. Third quarter 2005 net income was $1.9 million compared to $9.5 million for the 2004 third quarter.

Third quarter 2005 net income per diluted share was $0.04 per share compared to $0.20 in the prior-year quarter. Third quarter 2005 pretax income was reduced by approximately $750,000, or $0.01 per share, due to deployment costs associated with hurricanes Katrina and Rita.

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 during the quarter. Operating earnings (earnings before special credit, net corporate interest expense and income taxes) in the 2005 third quarter totaled $4.5 million compared with $8.4 million in the prior year quarter.
U.S. revenues before reimbursements were $114.5 million in the third quarter of 2005 compared with $123.5 million in the 2004 third quarter.

Revenues from the insurance company market were $50.3 million in the 2005 third quarter compared with $58.0 million in the 2004 period, which reflects a $5.7 million decline in catastrophe-related revenues from the 2004 period when the Company was responding to the hurricanes which struck the southeastern United States. Revenues from self-insured clients were $37.6 million in the 2005 third quarter compared with $39.5 million in the 2004 quarter, due primarily to a reduction in claim referrals from the Company’s existing clients, only partially offset by net new business gains. Class action services revenues were $26.6 million for the 2005 third quarter, compared with $26.0 million in the comparable year-ago quarter. These revenues can fluctuate based on the timing and size of project awards.

Third quarter 2005 international revenues grew to $70.2 million from $62.4 million for the same period in 2004. During the 2005 third 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 $67.7 million in the 2005 third quarter, reflecting growth in revenues on a constant dollar basis of 8.4 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, as well as revenues from flood losses in Canada. International operating expenses increased by $6.2 million, a 10.1 percent increase, and by 6.4 percent on a constant dollar basis.

“Our third quarter 2005 results in the U.S. reflect a continued strong performance by our class action services unit,” Thomas W. Crawford, Crawford & Company CEO said. “However, these results were offset by revenue declines within our U.S. catastrophe unit which benefited from hurricane-related claims in the 2004 third quarter. We are in the early stages of assessing the massive devastation caused by hurricanes Katrina and Rita in the Gulf Coast, and the full impact of these events will not be reflected in our results until the 2005 fourth quarter.

“We continue to face challenges in the U.S. property and casualty market, as reflected by a decline in our U.S. operating margin from 5.7 percent in last year’s third quarter to 1.3 percent in the current quarter,” Crawford explained. “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 we focus on improving our work product, investing in the training and development of our employees, and growing our market share. By maintaining our service capabilities, we are now able to provide our clients with the resources they require to adjust the influx of claims resulting from the recent hurricanes. We have over 300 catastrophe adjusters and scores of branch adjusters from all over the country deployed in response to approximately 25,000 claims that have been referred to us.

“These claims have in excess of $3.0 billion in insured value associated with them and both the claim counts and associated insured values continue to grow on a daily basis, as the full impact of the devastation is still being realized. We are currently projecting incremental revenues related to hurricanes Katrina and Rita of approximately $30 million, of which $15 million is expected to be realized during the fourth quarter of 2005. Within our class action services unit, we continue to have a strong backlog of projects, totaling approximately $38.0 million at quarter end, which should provide growth in revenues and operating earnings in future quarters.”

Crawford said operating earnings in the company’s international segment more than doubled, to $3.0 million, reflecting an improvement in our operating margin from 2.2 percent in the 2004 third quarter to 4.3 percent in the 2005 quarter. This growth reflects increased case referrals in our United Kingdom and European operations resulting from claims management agreements entered into during 2004 and 2005. In addition, flood losses in Canada contributed to our margin improvement during the current quarter. We have been very pleased with the operating results generated by our international segment this year and expect continued strong performance from this unit in the future.

Total revenues before reimbursements for the nine months ended Sept. 30, 2005 were $555.1 million compared with $527.7 million in 2004. Operating earnings totaled $15.2 million in the 2005 period compared with $19.2 million in 2004. Net income for the current nine-month period totaled $6.9 million, or $0.14 per share, compared with $17.5 million, or $0.36 per share, reported in the prior year.

U.S. revenues before reimbursements for the 2005 nine-month period were $341.3 million compared with $342.4 million in 2004.

International revenues before reimbursements were $213.7 million in the 2005 year-to-date period compared with $185.4 million during 2004. Excluding the benefit of exchange rate fluctuations, international revenues would have been $203.3 million in the current year-to-date period, reflecting growth in revenues on a constant dollar basis of 9.7 percent. International operating expenses increased by $23.7 million, a 13.2 percent increase, and by 7.6 percent on a constant dollar basis.

“Our operating cash flows for the 2005 nine-month period reflect an improvement of $2.1 million as compared to the prior-year period,” Crawford concluded. “This improvement is primarily due to the collection of accounts receivable generated from the hurricane-related claims administered in 2004 and 2005. Overall, our consolidated cash position as of Sept. 30, 2005 is sound, totaling $36.2 million, up $8.3 million from the $27.9 million reported at Sept. 30, 2004.”