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Aflac (AFL) Q1 Earnings to Gain From Higher US Segment Sales


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Aflac Inc. AFL is scheduled to announce first-quarter 2018 results on Apr 25, after the closing bell. Its quarterly revenues and earnings are expected to improve year over year.

The company is expected to benefit from a healthy sales pipeline in its U.S. segment, share buyback partly offset by an expected sales decline in it Japan business and branch conversion cost.

Last quarter, Aflac's earnings surpassed estimates by 3.2% led by strong contribution from its U.S. segment. This is depicted in the chart below:

Earnings Surprise History

The company boasts an attractive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 5.88%.

Aflac Incorporated Price and EPS Surprise

Aflac Incorporated Price and EPS Surprise | Aflac Incorporated Quote

Why a Likely Positive Surprise?

Our proven model indicates that chances of Aflac beating the Zacks Consensus Estimate are high as it has the right combination of the two key ingredients - positive Earnings ESP and a Zacks Rank #3 (Hold) or better. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks ESP: The Earnings ESP for Aflac is +1.73%.

Zacks Rank: Aflac has a Zacks Rank #2 (Buy), which increases the predictive power of ESP.

Factors Affecting Q1 Results

Aflac's first-quarter results are expected to benefit from increased sales from its U.S. segment. This unit has been performing strongly as evident by increasing revenues since 2010, a trend that continued in 2017. We expect to see strong financial performance and continued strength in the profitability of Aflac U.S. led by the ongoing investment in this business, such as the adoption of Everwell for increased penetration, delivery of value-added services and increased client retention; product partnering to drive improved account values and employee access; and investment in administrative capabilities, should drive overall growth.

We expect to see new sales increase in the first quarter driven by overall growth of broker distribution and improved growth in the company's career sales distribution. Broker distribution is expected to drive sales in the mid-case market, an area of focus for the company in 2018. The career sales distribution should drive sales in the small case market.

Aflac's top line remains sufficiently exposed to a challenging operating environment, primarily in Japan. The persistent low interest rate environment has led the company to deemphasize sales of first-sector (life insurance) products in Japan and emphasize sale of third sector products. However, third sector sales is expected to be down in the first half of the year and especially in the first quarter, due to the introduction of one refreshed core medical product in the first quarter of 2017, driving sales increase.

Moreover, sales in the Japan segment will also be under pressure, as the company delayed product introduction until the second quarter, due to Japan branch deconversion to a subsidiary. Per management, third sector sales could be down in the high single digits in the first quarter of the year.
However, the company's continued efforts to return capital to its shareholders via share buyback will cushion its bottom line.

The company should incur part of Japan branch conversion costs in the first quarter. Management expects the same to come in at the lower end of its cost expectation of $120 million to $130 million. While $42 million has already been incurred in 2017, the rest of the cost is expected to be incurred in the first half of 2018.

Other Stocks Worth Considering

Here are some companies worth considering as our model shows that these possess the right combination of elements to beat estimates this quarter:  

American Equity Investment Life Holding Company AEL will likely report first-quarter 2018 earnings results on May 2. The company has an Earnings ESP of +1.61% and carries a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here ..

Primerica, Inc. PRI has an Earnings ESP of +1.47% and a Zacks Rank of 3. The company is expected to report first-quarter earnings results on May 8.

American Financial Group, Inc. AFG has an Earnings ESP of +2.4%. This Zacks #2 Ranked company is expected to report first-quarter earnings results on May 2.

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Primerica, Inc. (PRI): Free Stock Analysis Report

Aflac Incorporated (AFL): Free Stock Analysis Report

American Equity Investment Life Holding Company (AEL): Free Stock Analysis Report

American Financial Group, Inc. (AFG): 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.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: PRI , AFL , AEL , AFG



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