Unum Beats Earnings, Misses Rev. - Analyst Blog

By Zacks Equity Research,

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Unum Group ( UNM ) reported second quarter 2013 operating earnings of 82 cents per share, beating the Zacks Consensus Estimate of 80 cents per share by 2.5%.  Results also improved 3.8 % year over year from 79 cents per share.

The company benefited from excellent risk results across its core businesses. Returns from its core business segments remained solid.

Including net realized investment gains and non-operating retirement-related losses, Unum reported net income of 82 cents during the second quarter of 2013, up 7.9% year over year.

Quarterly Operational Update

Total revenues of Unum in the quarter declined 0.6% year over year to $2.60 billion. The top line was also a tad lower than the Zacks Consensus Estimate of $2.61 billion. Decline in sales in the Unum U.S., Unum U.K. and Colonial Life segment contributed to the overall top line shortfall.

Quarterly Segment Update

Unum U.S. Segment: Premium income in the quarter was $1.13 billion, up 1.5% year over year. Operating income augmented 0.6% year over year to $214 million in the quarter.

The benefit ratio during the second quarter stood at 83.9%, down 80 basis points year over year. Improved risk results in group short-term disability was offset by less favorable risk results in group long-term disability due to a decline in the discount rate during the third quarter of 2012.

Unum U.K. Segment: Premium income decreased 20.6% year over year to $137.6 million in the second quarter of 2013 mainly due to the reinsurance agreements entered into in the last quarter to cede an additional portion of the group life business. In local currency, premium income decreased 18.1% year over year to £89.6 million in the reported quarter.

Operating income was $33.5 million, up 11.7% year over year. In local currency, operating income was £21.8 million, up 14.1% year over year.

Benefit ratio was 84.2% in the quarter, down 120 basis points from 85.4% in the year-ago quarter. The lower benefit ratio is attributable to favorable group long-term disability risk experience that arose from favorable claim incidence and claims recovery rates.

Colonial Life Segment: Premium income in the quarter was $307.9 million, up 3.7% year over year. Higher premium income was the result of continued favorable persistency. Operating income increased 5.2% year over year to $71.1 million in the quarter.

Benefit ratio decreased 40 basis points to 52.1% in the second quarter. Improved risk experience in the accident, sickness and disability product line, and life product line more than offset less favorable incurred claims experience in the cancer and critical illness product line.

Closed Block Segment: Premium income declined 4% year over year to $328.8 million during the second quarter. The decline is attributable to the expected run-off of the individual disability business.

Operating income in the segment was $29.6 million during the quarter, up 15.2% year over year. Higher net investment income, driven by an increase in assets supporting the long-term care business led to the upside.

Corporate Segment: The segment reported an operating loss of $37.1 million, wider than the year-ago loss of $25.9 million. A wider operating loss resulted from lower net investment income and slightly higher interest expense. The increase in interest expense was driven by the $250 million debt issuance in the third quarter of 2012.

Capital Management

As of Jun 30, 2013, the weighted average risk-based capital for Unum's traditional US insurance companies was nearly 398% as compared to 396% as of Mar 31, 2013. As of Jun 30, 2012, Cash and marketable securities in the holding companies were $597 million as compared to $652 million as of Mar 31, 2013.

During the second quarter Unum purchased 3.6 million shares for $98 million. Currently the company is left with 263.6 million shares under its buyback authorization.

Financial Position

Shareholder's equity stood at $8.2 billion in the second quarter of 2013, representing a 4.7% sequential decline. Book value per share increased 6.2% year over year to $31.80 as of Jun 30, 2013.

2013 Guidance

Unum reiterated its growth expectations for 2013 operating earnings. Unum expects full year 2013 operating earnings to grow in the range of 0%-6% from 2012 levels, including the effect of expected share repurchases.

Our Take

Unum has beaten estimates in all of the last four quarters with an average beat of 3.9%. In terms of performance, Unum's underperforming segments are approaching gradual recovery. Although sales growth remains a challenge for the company, Unum has been working hard to maintain the pricing and underwriting discipline that is expected to augment company financials going forward. Moreover, the company has a strong capital management program. It has been continuously returning capital to share holders through buybacks and dividend payouts, thereby retaining investor confidence on the stock.

Performance of a Few Accident and Health Insurers

Aflac Inc. ( AFL ) reported second-quarter 2013 operating earnings per share of $1.62. The results comfortably surpassed the Zacks Consensus Estimate of $1.52 but were a penny higher than the year-ago quarter figure. Operating earnings edged up 0.5% year over year to $759 million.

ACE Limited ( ACE ) reported second quarter 2013 operating net income of $2.29 per share, up 19.3% from the Zacks Consensus Estimate of $1.92. Results improved 5.5% from $2.17 earned in the year-ago quarter. Operating income was $790 million, up 6.3% over the prior-year quarter.

Lincoln National Coporration ( LNC ) reported second-quarter 2013 operating earnings of $1.27 per share. The results surpassed the Zacks Consensus Estimate of $1.15 and breezed past the prior-year quarter's earnings of $1.09 a share.

Zacks Rank

Unum Group presently caries a Zacks Rank #3 (Hold).

ACE LIMITED (ACE): Free Stock Analysis Report

AFLAC INC (AFL): Free Stock Analysis Report

LINCOLN NATL-IN (LNC): Free Stock Analysis Report

UNUM GROUP (UNM): Free Stock Analysis Report

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Zacks Investment Research

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

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: ACE , AFL , LNC , UNM

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