Aflac's EPS In Line, Beats Y/Y - Analyst Blog


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Aflac Inc. 's ( AFL ) fourth-quarter 2012 operating earnings per share of $1.48 came in line with the Zacks Consensus Estimate and were slightly ahead of the year-ago quarter's earnings of $1.45. Operating earnings edged up 2.0% year over year to $697 million. A weak yen/dollar exchange rate had a negative impact of 4 cents per share on the operating earnings.

Operating earnings in the reported quarter primarily excluded the after-tax negative impact of realized investment gains from securities transactions and impairments of $141 million or 29 cents per share compared with $168 million or 35 cents per share in the year-ago quarter. It also excluded other operating losses and hedge costs on investment totaling $8 million or 2 cents a share in the reported quarter. Additionally, a positive impact of derivative and hedging activities worth $33 million or 7 cents per share affected the operating earnings as opposed to $22 million or 5 cents per share recorded in the year-ago period.

Including one-time items, Aflac's GAAP net income in the reported quarter rose about 8.0% to $581 million or $1.24 per share against $538 million or $1.16 per share in the year-ago period. Total acquisition and operating expenses moved up 3.4% year over year to $1.51 billion, while benefits and claims jumped 7.8% year over year to about $4.0 billion.

Total revenue for the reported quarter augmented 6.6% year over year to $6.38 billion, but fell short of the Zacks Consensus Estimate of $6.61 billion. Despite the ongoing derisking activities, weak yen and the low-rate environment, total revenue benefited from consistent improvements in the U.S. and Japan. While Aflac Japan contributed about 80% to the total revenue, Aflac U.S. contributed the remaining 20%.

Total revenue in Japan increased 5.4% year over year to $5.1 billion. Reflecting the accelerated sales from the bank channel and WAYS product, but partially offset by weak average yen. Premium income from the Japanese operations, in terms of dollars, was up 6.1% year over year to $4.4 billion in the reported quarter.

Net investment income from the Japanese operations inched up 0.3% year over year to $711 million. The growth was primarily mitigated by a weak yen/dollar exchange rate, which was 80.93, or 4.4% weaker than the average rate of 77.35 in the year-ago quarter. However, higher benefit ratio, weak yen and other expenses resulted in pre-tax operating earnings of $906 million in Japan, dipping 0.5% over the prior-year quarter.

Aflac U.S. generated revenue of $1.4 billion, up 5.8% over the prior-year quarter. Net investment income grew 4.4% year over year to $156 million. Premiums from the U.S. operations were up 5.5% year over year to $1.3 billion. Given the lingering weakness in the U.S. and limited growth in new sales, total new annualized sales slipped 0.7% year over year to $444 million as more than 90% of the accounts come from the small business market.

Subsequently, pre-tax operating earnings in the U.S. climbed 5.9% year over year to $208 million, whereas persistency improved to 77.1% from 76.2% in the year-ago quarter.

Highlights of Full-Year 2012

For full-year 2012, Aflac reported operating earnings per share of $6.60, which breezed past the Zacks Consensus Estimate of $6.59 but modestly grew from $6.27 recorded in 2011. Operating earnings climbed 5.1% year over year to $3.1 billion. A slightly weak yen/dollar exchange rate had a positive impact of 1 cent on operating earnings in 2012.

Including one-time items, GAAP net income surged 48.0% to $2.87 billion or $6.11 per share in 2012 versus $1.94 billion or $4.12 per share in 2011.

Total revenue for the reported quarter inflated 14.4% year over year to $25.36 billion, also exceeding the Zacks Consensus Estimate of $25.73 billion. Total acquisition and operating expenses climbed up 4.8% year over year to $5.73 billion in 2012, while benefits and claims spiked 11.5% to $15.33 billion.

Financial Update

As of Dec 31, 2012, total investment and cash were $118.2 billion compared with $103.46 billion at 2011-end, while shareholders' equity totaled $16.0 billion as against $13.50 billion during the comparable period. Shareholders' equity per share was $34.16 at the end of 2012, up from $27.76 per share reported at the end of 2011.

At the end of 2012, Aflac projected its risk-based capital ratio to be higher than the targeted range of 400%-500%, compared with 493% at 2011-end, while its solvency ratio of 628% in Japan exceeded the target range of 500%-600%. During the reported quarter, net unrealized gain on investment securities and derivatives were $2.6 billion as compared with $2.3 billion in the prior quarter.

Meanwhile, annualized return on average shareholders' equity for the reported quarter was 14.5% against 27.0% 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 shareholders' equity) Aflac's return on average shareholders' equity came in at 20.6%, up from 25.2% in the previous quarter.

Aflac bought back 1.9 million shares for $100 million in the reported quarter and full-year 2012, while 22.4 million shares remain available for repurchases under the current authorization. The company plans to buyback shares worth $400-$600 million in 2013.


Concurrent with the release of the fourth-quarter result, Aflac provided its 2013 outlook. New annualized sales are projected to grow by 0%-5% in 2013, reflecting difficult comps. Aflac Japan's third sector cancer and medical products sales are also expected to exhibit 0%-5% growth.

Excluding currency fluctuations, Aflac anticipates the earnings to grow by 4%-7% or about $6.86-$7.06 per share in 2013. Accordingly, if the yen averages 90 against dollar, the earnings growth is expected to be within $6.37-$6.57 per share for 2013.

Dividend Update

Concurrently, the board of Aflac announced a regular cash dividend of 35 cents per share, which is payable on Mar 1, 2013 to its shareholders of record as on Feb 15, 2013.

Earlier, on Dec 3, 2012, Aflac paid a dividend of 35 cents per share to its shareholders of record as on Nov 14, 2012, up 6.1% from the prior-year earnings of 33 cents a share.


Aflac carries a Zacks Rank #3 (Hold). Other strong performers in the insurance sector include HCC Insurance Holdings Inc. ( HCC ), RLI Corp. ( RLI ) and Selective Insurance Group Inc. ( SIGI ), all of which carry a Zacks Rank #1 (Strong Buy).

AFLAC INC (AFL): Free Stock Analysis Report

HCC INS HLDGS (HCC): Free Stock Analysis Report

RLI CORP (RLI): Free Stock Analysis Report

SELECT INS GRP (SIGI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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