CNO Q2 Deep Dive: Margin Pressures Emerge Amid Strong Sales and Digital Momentum

Insurance services company CNO Financial Group (NYSE:CNO) fell short of the market’s revenue expectations in Q2 CY2025 as sales only rose 1.6% year on year to $954.9 million. Its non-GAAP profit of $0.87 per share was 1.8% above analysts’ consensus estimates.

Is now the time to buy CNO? Find out in our full research report (it’s free).

StockStory’s Take

CNO Financial Group’s second quarter saw a negative market reaction after the company missed Wall Street’s revenue expectations, despite reporting modest year-on-year sales growth. Management attributed the quarter’s underperformance to margin compression, which stemmed primarily from lower yields on alternative investments and some uptick in claims within the Medicare Supplement portfolio. CEO Gary Bhojwani pointed out that direct-to-consumer sales, especially through digital channels, delivered notable gains, but also emphasized that the annuity and Medicare businesses faced evolving competitive and regulatory dynamics.

Looking ahead, CNO’s outlook is shaped by ongoing investments in technology, continued sales momentum, and a focus on the underserved middle-income market. Management highlighted the importance of expanding digital lead generation and enhancing agent productivity to sustain growth. CFO Paul McDonough stated, “We remain on track to generate an operating return on equity of around 10.5% for the full year 2025.” However, management also acknowledged potential headwinds, including claims experience trends and persistent competition in the annuity segment.

Key Insights from Management’s Remarks

Management highlighted robust sales momentum, digital transformation, and evolving product mix as key drivers of the quarter’s results, while acknowledging the impact of margin compression and shifts in underlying investment yields.

• Digital sales transformation: Direct-to-consumer (D2C) sales, particularly via web and digital channels, grew significantly as consumer behavior shifted away from traditional television. CEO Gary Bhojwani noted that web and digital now represent nearly a third of D2C sales, driven by a 39% year-over-year increase.
• Annuity sales records: The Consumer division recorded its eighth consecutive quarter of annuity growth, with collected premiums surpassing $500 million for the first time. Management emphasized the average account size increase and stable persistency rates due to captive distribution.
• Worksite division expansion: The Worksite segment posted its sixth straight quarter of record insurance sales, propelled by geographic expansion initiatives and launch of new technology-driven training tools for agents. Notably, new group client NAP (new annualized premium) grew by 84%.
• Margin pressures and investment returns: CFO Paul McDonough cited a decline in operating margin, attributing it to lower yields on alternative investments and some uptick in claims within the Medicare Supplement portfolio. However, favorable claims in supplemental health and long-term care mitigated these effects.
• Product mix and risk management: Management stressed differences in CNO’s Medicare business compared to peers, emphasizing a less concentrated risk profile due to its focus on distribution rather than manufacturing Medicare Advantage products and the annual repricing capability in Medicare Supplement.

Drivers of Future Performance

Management expects continued digital adoption, agent productivity enhancements, and robust demand in the middle-income market to support growth, while monitoring margin headwinds and competitive pressures.

• Digital and agent productivity focus: CNO aims to further expand digital lead generation and invest in agent training, expecting these initiatives to drive sales and customer retention, particularly as consumer preferences shift toward digital channels.
• Medicare and annuity trends: The company anticipates steady demand for Medicare-related products and annuities, aided by demographic trends, but acknowledges ongoing spread compression and heightened competition from asset managers targeting the annuity space.
• Expense management and regulatory actions: Management plans to maintain expense discipline and leverage annual repricing in Medicare Supplement products to respond to claim trends, while continuing discussions with Bermuda regulators to optimize capital deployment and return on equity.

Catalysts in Upcoming Quarters

In tracking CNO’s execution over the coming quarters, the StockStory team will focus on (1) continued growth in digital and web-based sales channels, (2) the company’s ability to manage operating margins through expense controls and repricing in Medicare Supplement, and (3) progress in expanding agent productivity and geographic reach in the Worksite division. We will also monitor any regulatory developments around the Bermuda operation that could affect capital efficiency.

CNO Financial Group currently trades at $37.72, in line with $37.63 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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