Aflac Inc. (AFL – Analyst Report) reported second-quarter 2015 operating earnings per share of $1.50 that missed the Zacks Consensus Estimate by a couple of cents and also declined year over year by 9.6%.
Aflac Inc. – Earnings Surprise | FindTheBest
Bottom line underperformance stemmed from 2 cents per share of software development costs that at Aflac Japan and unfavorable impact from yen-dollar exchange rate fluctuation.
Including one-time items, Aflac's net income in the reported quarter also declined 25.8% year over year to $1.32 per share.
Further, total revenue decreased 9.4% year over year to $5.29 billion and missed the Zacks Consensus Estimate of $5.34 billion. A weak yen and the low interest rate environment further weighed on the results.
Total acquisition and operating expenses increased 13% year over year to $1.48 billion while benefits and claims fell 10.8% year over year to $2.94 billion.
Detailed Analysis
Total revenue in Aflac Japan plummeted 15.8% year over year to $3.6 billion, primarily owing to adverse effects of the yen-dollar exchange rate, which in turn, affected the company's premium income and investment income in terms of dollar. Premium income decreased 16.8% to $3 billion during the reported quarter. Investment income was also down 11% to $605 million.
Pre-tax operating earnings were $757 million in Japan, down 16.8% from the prior-year quarter.
Aflac u.s. generated revenues of $1.5 billion, up 1.9% from the prior-year quarter. Net investment income grew 4% to $168 million while premiums rose 1.6% to $1.3 billion. Consequently, total new annualized sales in Aflac U.S. increased 3.1% to $344 million.
However, pre-tax operating earnings in the U.S. declined 2% year over year to $293 million.
Financial Update
As of Jun 30, 2015, total investment and cash were $103.28 billion compared with $114.73 billion at year-end 2014, while shareholder equity totaled $17.02 billion as against $17.56 billion in 2014. During the reported quarter, net unrealized gain on investment securities and derivatives was $3.4 billion as against $5 billion in the prior quarter.
Meanwhile, annualized return on average shareholder equity for the reported quarter was 12.9%. On an operating basis (excluding realized investment losses and derivative losses/ gains in shareholders' equity and unrealized investment gains/losses in shareholder equity) Aflac's return on average shareholder equity came in at 23.1%, excluding the yen effect.
Guidance for 2015
Along with the release of second-quarter results, Aflac affirmed its 2015 outlook. Given company's strong operational development, management anticipates operating earnings growth of 4–7% in 2015.
Also, if yen averages 120–125 to dollar, the company also expects its earnings in the third quarter to be in the range of $1.40–1.53 per share. Using the same exchange rate, operating earnings for full-year 2015 is expected to lie within $5.88–$6.17.
Keeping in mind Aflac's strong sales performance in the first half of 2015, the company is expected to witness growth in the range of 7–10% in cancer and medical products lie for 2015.
Depending on the strong capital base, Aflac plans to buy1.3 billion common stock through 2015.
Zacks Rank
Aflac presently carries a Zacks Rank #3 (Hold). Better-ranked stocks from the insurance space, MGIC Investment Corp. (MTG – Analyst Report), Assurant Inc. (AIZ- Analyst Report) and The Hartford Financial Services Group, Inc. (HIG – Analyst Report) all outpaced the Zacks Consensus Estimate for second-quarter 2015 earnings.
