) reported third-quarter 2013 operating earnings per share of
$1.47, which came in line with the Zacks Consensus Estimate.
However, results declined 16.9% from the year-ago quarter figure
Operating earnings also tumbled 17.2% year over year to $687
million, primarily on declining Japan sales. A weak yen/dollar
exchange rate had a negative impact of 21 cents per share on
Operating earnings excluded the after-tax negative impact of
realized investment gains from securities transactions and
impairments of $41 million or 9 cents per share compared with
$124 million or 26 cents per share in the year-ago quarter. The
figure also excluded hedge costs on foreign investment totalling
$4 million or 1 cent a share in the reported quarter.
Additionally, derivative and hedging activities worth $22 million
or 5 cents per share impacted the operating earnings, as opposed
to a positive effect of $64 million or 13 cents per share
recorded in the year-ago period.
Including one-time items, Aflac's GAAP net income in the
reported quarter plunged about 31% to $702 million or $1.50 per
share against $1.02 billion or $2.16 per share in the year-ago
period. Conversely, total acquisition and operating expenses
decreased 7.2% year over year to $1.33 billion, whereas benefits
and claims fell 11.4% to $3.49 billion.
Further, total revenue dropped 14% year over year to $5.89
billion, although it was in line with the Zacks Consensus
Estimate. A weak yen and the low-rate environment adversely
affected the top line. While Aflac Japan contributed about 75% to
the total revenue, Aflac U.S. contributed the remaining 25%.
Total revenue in
decreased 14.4% year over year to $4.4 billion, primarily owing
to decelerated sales from WAYS products along with a weak average
yen, which led to 64.9% decline in bank channel sales. The
downfall was partially offset by 12% increase in sales of cancer
and other medical products. Premium income from the Japanese
operations, in terms of dollars, slid 15.2% year over year to
$3.7 billion in the reported quarter.
Net investment income from the Japanese operations declined
7.7% from the prior-year quarter to $659 million. The growth was
primarily mitigated by a weak yen/dollar exchange rate, which was
98.93, or 20.5% weaker than the average rate of 78.64 in the
Consequently, pre-tax operating earnings stood at $846 million
in Japan, down 14.9% over the prior-year quarter. Operating
margins dipped to19.2% from 19.3% in the year-ago quarter based
on flat expense ratio but high benefit ratio.
On the other hand, Aflac
generated revenues of $1.5 billion, up 2.9% over the prior-year
quarter. Net investment income grew 4.2% year over year to $159
million. Premiums from the U.S. operations were up 3.1% year over
year to $1.3 billion. Given the sluggishness in the U.S. market
and limited growth in new sales, total new annualized sales
inched down 1.5% year over year to $330 million as more than 90%
of the accounts come from the small business market.
Subsequently, pre-tax operating earnings in the U.S. increased
3.3% year over year to $269 million, whereas persistency improved
slightly to 76.7% from 76.6% in the year-ago quarter. Operating
margin also edged up to 18.5% from 18.4% in the year-ago
As of Sep 30, 2013, total investment and cash were $106.7
billion compared with $118.2 billion at 2012-end, while
shareholder equity totaled $14.7 billion as against $16.0 billion
during the comparable period, primarily due to changes in
investment valuation. Shareholder equity per share was $31.47 at
the end of Sep 2013, down from $34.16 per share reported at the
end of 2012.
At the end of Sep 2013, Aflac projected its risk-based capital
ratio to be over 750%, higher than 630% at 2012-end, while its
solvency ratio in Japan is expected to be about 730%, up from
669% at 2012-end. During the reported quarter, net unrealized
gain on investment securities and derivatives were $135 million
as compared with a loss of $209 million in the prior quarter.
Meanwhile, annualized return on average shareholder equity for
the reported quarter was 19.8% against 24.3% 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 19.4%, down from 22.1% in
the previous quarter.
Aflac bought back about 308,000 shares worth $18.5 million
during the reported quarter. About 16.9 million shares were
available for repurchase as of Sep 30, 2013.
Concurrent with the release of the third-quarter results,
Aflac updated its 2013 outlook. Excluding currency fluctuations,
Aflac anticipates operating earnings to grow 4-7% or about
$6.86-7.06 per share in 2013. Accordingly, if the yen averages
95-100 against the dollar, the earnings growth is expected within
$6.16-6.21 per share or about 5% for 2013.
Under the same currency assumptions, operating earnings are
projected to be within $1.38-1.43 per share in the fourth quarter
of 2013, while the same for full-year 2014 is estimated to be
within $6.28-6.52 per share, reflecting growth of 2-5% over 2013.
However, management expects to rebound in 2015. The solvency
ratio in Japan is expected within 500-600%.
Aflac Japan's third sector cancer and medical products sales
are expected to exhibit growth at the higher end of nil to 5%.
The latest alliance with Japan Post should drive growth in the
second half of 2013, particularly, in the fourth quarter. New
annualized sales in the U.S. are projected to grow by nil to 5%
in 2013, reflecting difficult comps.
Further, Aflac expanded its share repurchases to $800 million
in 2013, up from the prior estimate of $600 million. The company
bought back shares worth $298 million in the first three quarters
of 2013. Meanwhile, shares between $800 million and $1.0 billion
are expected to be bought back in 2014, up from the earlier
projection of $600-900 million.
Concurrently, the board of Aflac hiked its regular cash
dividend of 35 cents per share by 5.7% to 37 cents. This will be
payable on Dec 2, 2013 to the company's shareholders of record as
on Nov 20, 2013.
Earlier, on Sep 3, 2013, Aflac paid a dividend of 35 cents per
share to its shareholders of record as on Aug 21, 2013.
Aflac currently carries a Zacks Rank #3 (Hold). Other strong
performers in the insurance sector include
Employers Holdings Inc.
), each carrying a Zacks Rank #1 (Strong Buy).
AFLAC INC (AFL): Free Stock Analysis Report
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