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Travelers' Q1: Why The Big Miss?


TRV experienced its worst earnings miss and its worst daily performance in two years yesterday.

The adverse weather was a significant factor behind the disappointing report.

Nevertheless, the change of the CEO may also have played a major role.

Investors should monitor the performance of TRV for another 2-3 quarters to determine which factor was the most important.

The Travelers Companies (NYSE:TRV) reported remarkably disappointing results yesterday, missing the analysts' consensus by a wide margin (EPS $2.33 vs. expected $2.55). As a result, the stock plunged 6% yesterday, by far its worst daily performance in the last 2 years. Therefore, the big question for the shareholders is whether Q1 was just a temporary setback due to the adverse weather phenomena that prevailed or this is just the beginning of more business deterioration ahead.

First of all, Travelers had an exceptional record of beating analysts' estimates until yesterday. To be sure, the company had exceeded the estimates by an average 19% in the previous 3 quarters. In addition, it had beaten the estimates in 8 out of the last 10 quarters. Therefore, the earnings miss in Q1, which was the worst miss in the last 2 years, should be at least alarming.

The disappointing performance essentially resulted from the high weather-related catastrophic losses, which were $101 M higher after tax than those of last year. The results were also affected by the record-low interest rates, which caused the...