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Lincoln National (LNC) Q1 Earnings Lag on Higher Benefits Costs

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Lincoln National Corporation (LNC - Free Report) reported first-quarter 2022 adjusted earnings of $1.66 per share, which missed the Zacks Consensus Estimate of $1.97. Also, the bottom line declined from the prior-year figure of $1.82 per share.

Adjusted operating revenues decreased to $4,718 million for the first quarter from $4,762 million a year ago. Also, the top line missed the consensus mark of $4,768 million.

The weak quarterly results were caused by increased costs and expenses, and lower returns from LNC’s alternative investment portfolios. Muted contributions from Retirement Plan Services, Life Insurance and Group Protection businesses were partially offset by a solid performance of the Annuities unit.

Costs and Expenses

Total expenses of $4,595 million increased from $4,272 million a year ago, primarily due to higher costs related to benefits, Spark, and commissions and other. Benefits constitute 55.8% of total expenses.

Segmental Performance

The Annuities segment’s operating income increased to $302 million for the first quarter from $290 million a year ago, courtesy of a solid equity market performance that paved the way for increased account values. Operating revenues advanced to $1,232 million from $1,204 million in the year-ago period. Total annuity deposits decreased 3.9% year over year to $2,705 million.

The Retirement Plan Services segment reported an operating income of $55 million, which declined 3.5% year over year. The downside can be attributed to weak returns from Lincoln National’s alternative investment portfolio. The negatives were partially offset by increased account values, attributable to a robust equity market performance. Operating revenues of $318 million decreased 2.8% year over year. Total deposits of $3,367 million rose 27.5% year over year for the quarter under review.

Operating income in the Life Insurance segment amounted to $58 million, down from the prior-year quarter’s $107 million. The decline was caused by lower returns from the alternative investment portfolio and unfavorable underlying mortality. Operating revenues declined 5.9% year over year to $1,825 million. Total Life Insurance sales, however, increased 36% year over year to $155 million for the first quarter, thanks to the rising sales across all key products. Total deposits increased 9.4% year over year to $1,334 million.

The Group Protection segment incurred a loss from operations of $41 million, wider than the prior-year loss of $26 million. Per management, this downside was induced by a non-pandemic-related morbidity and "unusual" claim adjustments. Lower returns from the alternative investment portfolio also affected the unit. Operating revenues of $1,303 million grew 3.9% year over year. Insurance premiums rose 4.5% year over year to $1,169 million. Total sales jumped 42% year over year to $105 million for the quarter under review.

Financial Update (as of Mar 31, 2022)

Lincoln National exited the first quarter with cash and invested cash of $1,960 million, which declined from $2,612 million at 2021 end. Total assets of $365.9 billion also decreased from the 2021-end level of $387.3 billion.

Long-term debt at the first-quarter 2022 end amounted to $6,561 million, up from $6,325 million at the fourth-quarter 2021 end. It had no short-term debt at the first-quarter-end. As of May 4, 2022, its senior debt received ‘A-‘ and ‘BBB+’ ratings from Standard & Poor’s and Fitch, respectively. Shareholders’ equity declined to $14,712 million from $20,272 million at 2021 end.

Book value per share, excluding accumulated other comprehensive income (AOCI), increased 8.2% year over year to $78.32.

Adjusted operating return on equity excluding AOCI came in at 8.6% compared with the year-ago figure of 10.2%.

Cash Returned to Shareholders

Lincoln National bought back shares worth $400 million in the first quarter. Also, it paid out $80 million as common dividends.

Companies Expected to Beat Estimates

Although LNC, currently carrying a Zacks Rank #3 (Hold), missed on earnings, here are some companies from the Finance space worth considering, as our model shows that these have the right combination of elements to beat on earnings this time around:

Conifer Holdings, Inc. (CNFR - Free Report) has an Earnings ESP of +23.08% and a Zacks Rank #3 at present.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Conifer Holdings’ bottom line for the to-be-reported quarter indicates an 81.9% rise from the year-ago quarter’s reported figure.

The consensus mark for CNFR’s revenues is currently pegged at $26.5 million for the first quarter.

BRP Group, Inc. (BRP - Free Report) currently has an Earnings ESP of +3.63% and a Zacks Rank of 3.

The Zacks Consensus Estimate for BRP Group’s bottom line for the to-be-reported quarter indicates a 15.9% rise from the year-ago quarter’s reported figure.

BRP’s earnings beat estimates in three of the last four quarters and met the mark once, the average surprise being 24.1%.

Houlihan Lokey, Inc. (HLI - Free Report) has an Earnings ESP of +0.91% and is a Zacks #3 Ranked player.

The Zacks Consensus Estimate for Houlihan Lokey’s bottom line for the to-be-reported quarter is pegged at $1.10 per share.

HLI’s earnings beat estimates in each of the last four quarters, the average being 28.1%.