A month has gone by since the last earnings report for Unum (UNM). Shares have lost about 9.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Unum due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Unum Group (UNM) Q2 Earnings Beat Estimates, Revenues Miss
Unum Group's second-quarter 2018 operating net income of $1.30 per share beat the Zacks Consensus Estimate by 2.4%. Moreover, the bottom line improved 20.3% year over year on higher premiums and a stable benefits experience. Moreover, lower tax rate provided an additional boost to the metric.
Including after-tax realized investment loss of 1 cent, net income rose 20.6% year over year to $1.29 per share.
Total operating revenues of Unum Group were $2.9 billion, up 2.8% year over year on 3.7% higher premiums and 0.5% increase in investment income. However, the top line missed the Zacks Consensus Estimate by 0.7%.
Total benefits and expenses increased 3.3% year over year to $2.5 billion. Rise in benefits and a change in reserves for future benefits, commission, interest and debt expense, commissions, amortization of deferred acquisition costs plus other expenses led to an overall increase in costs.
Quarterly Segment Update
Unum U.S.: Premium income was $1.4 billion, up 4.3% year over year. Adjusted operating income inched up 1.3% year over year to $251.1 million.
Solid performance at group life and accidental death and dismemberment line of business plus supplemental and voluntary line of business was partially offset by soft results at group disability line of business.
Unum U.K.: Premium income grew 9.5% year over year to $138.9 million. In local currency, premium rose 3% year over year to £102.1 million, largely owing to higher persistency and growth in the in-force block resulting from prior-year period sales.
Adjusted operating income was $27.6 million, down 4.5% year over year. In local currency, the figure was £20.4 million, down 9.7% year over year.
Benefit ratio was 76.7%, having deteriorated 110 basis points (bps) due to unfavorable claims experience in the group life and supplemental product lines, partially offset by the impact of inflation-linked decreases in benefits.
Colonial Life : Premium income increased 5.1% year over year to $395.4 million on sales growth. Adjusted operating income increased 3.4% to $84.6 million.
Benefit ratio improved 30 bps year over year to 51%.
Closed Block : Premium income dipped 3.9% from the year-ago quarter's level. This decline stemmed from policy terminations and maturities for the individual disability line of business.
Adjusted operating income was $29.6 million, down 9.2% year over year.
Corporate : The segment incurred an operating loss of $35.5 million, narrower than the operating loss of $37.6 million in the year-earlier quarter.
As of Jun 30, 2018, the weighted average risk-based capital ratio for Unum Group's traditional U.S. insurance companies was approximately 385%. Unum Group exited the quarter with cash and marketable securities worth $1.1 billion.
Book value per share of Unum Group increased 4.8% year over year to $43.20 as of Jun 30, 2018.
The company spent about $100 million to buy back about 2.5 million shares in the reported quarter.
Long-Term Care Reserve Analysis Update
Unum Group accelerated the work on its long-term care annual reserve analysis, which is now expected to be completed in the third quarter of 2018.
Though the company intends to stall share buybacks for the third quarter, it expects to resume the same in the fourth quarter with a purchase of $100 million worth of shares quarterly and continue with more into 2019.
2018 Guidance Affirmed
Unum Group projects after-tax operating income growth per share between 17% and 23%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Unum has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for value investors than momentum investors.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Unum has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.