A month has gone by since the last earnings report for Aflac (AFL Quick QuoteAFL - Free Report) . Shares have lost about 2.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aflac 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.

Aflac's Q2 Earnings Beat on Lower Benefits and Claims

Aflac reported second-quarter 2023 adjusted earnings per share of $1.58, which beat the Zacks Consensus Estimate by 11.3%. The bottom line increased 7.5% year over year.

The strong second-quarter earnings were supported by higher sales, reduced benefits and claims, and improved profit levels from U.S. businesses. However, the positives were partially offset by lower net investment income and tepid performance in the Japan unit.

Aflac’s revenues dropped 2.7% year over year to $5,172 million in the quarter under review. The top line, however, beat the consensus mark by 14.5%.

Notable Q2 Performance

Adjusted net investment income fell 3% year over year to $892 million.

Total net benefits and claims of $2,098 million declined 7.7% year over year in the second quarter but remained above our model estimate of $2,037.3 million. Total acquisition and operating expenses dropped 6.3% year over year to $1,249 million and remained below our estimate of $1,262.3 million.

Inside AFL’s Segments

Aflac Japan

The segment’s adjusted revenues decreased 11.6% year over year to $2,710 million in the quarter under review but remained higher than our estimate of $2,614.8 million. Total net earned premiums of $2,064 million dropped 11.6% year over year because of limited pay products attaining paid-up status and implementation of a reinsurance transaction earlier. The figure beat our estimate by 4.2%.

Adjusted net investment income decreased 11.9% year over year to $637 million due to reduced variable investment income, increased hedge costs and asset transfers, but beat our estimate of $626.1 million. Pretax adjusted earnings of the segment amounted to $822 million, which tumbled 5.8% year over year in the second quarter, but comfortably beat our estimate.

New annualized premium sales of $117 million improved 26.6% year over year. The benefit ratio of the segment was 65.7% in the second quarter.

Aflac U.S.

The segment reported adjusted revenues of $1,663 million, which climbed 2.1% year over year in the quarter under review and beat our estimate of $1,616.8 million. Total net earned premiums climbed 2.2% year over year to $1,425 million and beat our estimate of $1,379.4 million due to its growth initiatives.

Adjusted net investment income of $203 million climbed 5.2% year over year and beat our estimate of $195.7 million, on the back of increased floating rate income. Pretax adjusted earnings of the segment were $369 million, which increased 7.6% year over year in the second quarter and beat our estimate of $345.4 million thanks to reduced benefits recognized.

Aflac U.S. sales of $324 million grew 6.4% year over year. The second-quarter benefit ratio came in at 45.3%.

Financial Position (as of Jun 30, 2023)

Aflac exited the second quarter with total cash and cash equivalents of $4,720 million, which increased from $3,943 million at 2022-end. Total investments and cash of $116.5 billion decreased from $117.4 billion at 2022-end. Total assets fell to $130.6 billion from $131.7 billion at 2022-end.

Adjusted debt decreased to $6,779 million at the second quarter-end from $7,105 million at 2022-end.

Total shareholders' equity of $20,439 million increased from $20,140 million at 2022-end.

Adjusted debt to adjusted capitalization, excluding accumulated other comprehensive income, came in at 19.4%, which improved 150 basis points (bps) from 2022-end.

While it has no debt maturities in less than a year, total debt maturities worth $1,280 million are expected within the next five years.

Adjusted book value per share increased 11.5% year over year to $46.61.

Adjusted return on equity, excluding foreign currency impact of 14.3%, deteriorated 10 bps year over year.

Capital Deployment

Aflac bought back 10.5 million shares worth $700 million in the second quarter. It had 95.8 million shares left for buyback as of the second-quarter end.

Management announced dividends of 42 cents per share for the third quarter of 2023, sequentially flat. The dividend will be paid out on Sep 1, 2023, to shareholders of record as of Aug 23.

Outlook

Aflac estimates improved sales in its Japan business for 2023, buoyed by product launches, product updates and Japan Post performance.

Management also remains optimistic about strong sales results within its U.S. business. Improving productivity, contributions from platforms like network dental and vision and group life, and disability are expected to continue supporting the results.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Aflac has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Aflac has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.