) reported first-quarter 2014 operating earnings per share of
$1.69 that breezed past the Zacks Consensus Estimate of $1.59,
although it stood at par with the year-ago quarter figure.
However, operating earnings dipped 2% year over year to $774
million, primarily on deteriorating Japan sales. A weak
yen/dollar exchange rate had a negative impact of 10 cents per
share on operating earnings.
Nonetheless, including one-time items, Aflac's GAAP net income
in the reported quarter tumbled to $732 million or $1.60 per
share from $892 million or $1.90 per share in the year-ago
period. Conversely, total acquisition and operating expenses
inched down 0.7% year over year to $1.32 billion, whereas
benefits and claims declined 8.6% to $3.22 billion.
Further, total revenue dropped 9.1% year over year to $5.64
billion, also lagging the Zacks Consensus Estimate of $5.88
billion. A weak yen and the low-rate environment adversely
affected the results. While Aflac Japan contributed about 74% to
total revenue, Aflac U.S. contributed the remaining 26%.
Total revenue in
plummeted 8.1% year over year to $4.2 billion, primarily owing to
decelerated sales from WAYS products along with a weak average
yen, which led to a 63.7% plunge in bank channel sales. The
downfall was marginally offset by 1.8% uptick in sales of cancer
and other medical products. Premium income, in terms of dollars,
decreased 8.8% year over year to $3.6 billion in the reported
Net investment income from the Japanese operations dipped 1.7%
year over year to $663 million. The growth was primarily
mitigated by a weak yen/dollar exchange rate, which was 102.70,
or 9.8% weaker than the average rate of 92.59 in the year-ago
quarter. Consequently, pre-tax operating earnings stood at $933
million in Japan, down 5.7% over the prior-year quarter.
On the other hand, Aflac
generated revenues of $1.5 billion, up 1.2% over the prior-year
quarter. Net investment income grew 2.5% to $161 million, whereas
premiums edged up 1.1% to $1.3 billion. Given the sluggishness in
the U.S. market and limited growth in new sales, total new
annualized sales fell 4.4% to $318 million as more than 90% of
the accounts come from the small business market.
However, pre-tax operating earnings in the U.S. improved 7.9%
year over year to $303 million, while persistency deteriorated to
73.8% from 74.7% in the year-ago quarter. Operating margin also
edged up to 20.8% from 19.5% in the year-ago period.
As of Mar 31, 2014, total investment and cash were $110.5
billion compared with $108.5 billion at 2013-end, while
shareholder equity totaled $15.7 billion as against $14.6 billion
during the comparable period, primarily due to changes in
investment valuation. During the reported quarter, net unrealized
gain on investment securities and derivatives was $1.9 billion as
compared with a gain of $1.0 billion in the prior quarter.
At the end of Mar 2014, Aflac projected its risk-based capital
ratio to be over 775%, higher than +750% at 2013-end, while its
solvency ratio in Japan is expected to be more than 750%, at par
with 2013-end levels.
Meanwhile, annualized return on average shareholder equity for
the reported quarter was 19.3% against 18.4% in the prior
quarter. On an operating basis (excluding realized investment
losses and the impact of ASC 815 on net earnings, and unrealized
investment gains/losses in shareholder equity), Aflac's return on
average shareholder equity came in at 22.7%, up from 18.5% in the
Share Repurchase Update
Aflac bought back about 6.5 million shares worth $415 million
during the reported quarter.
On Nov 13, 2013, the board of Aflac had sanctioned a new share
repurchase program for 40 million shares, to commence with
immediate effect. Including these, about 42.7 million shares were
available for repurchase as of Mar 31, 2014.
Concurrent with the release of the first-quarter results,
Aflac detailed its 2014 outlook.
Excluding currency fluctuations, Aflac anticipates operating
earnings to grow 2-5% or about $6.28-6.52 per share in 2014.
Assuming the yen averages 100 to 105 to the dollar, operating
earnings should be around $6.06-6.40 per share in 2014.
Under same currency assumptions, operating earnings in
second-quarter 2014 will likely be within $1.54-1.68 per share.
However, Aflac expects higher spending and benefit ratios in the
rest of 2014.
Earnings per share are expected to benefit from higher share
buybacks, which are projected to be worth between $800 million
and $1.0 billion in 2014. Based on healthy capital ratios,
management now projects repatriating about 127 billion yen to the
U.S., up from prior estimate of 100 billion yen.
Furthermore, Aflac Japan's third sector cancer and medical
products sales are likely to exhibit growth at 2-7%. Sales in the
U.S. are projected to grow by nil to 5% in 2014. The guidance
reflects the negative impact of difficult comps, low interest
rate environment, higher capital expenditures and currency
Concurrently, the board of Aflac declared its regular cash
dividend of 37 cents per share, payable on Jun 2, 2014 to
shareholders of record as on May 21.
Earlier, on Mar 3, 2014, Aflac paid a dividend of 37 cents per
share to its shareholders of record as on Feb 14.
Aflac currently carries a Zacks Rank #3 (Hold). Better-ranked
Protective Life Corp.
), each carrying a Zacks Rank #2 (Buy).
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