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Aflac (AFL) Q2 Earnings Beat Estimates, Guidance Intact

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Aflac Inc.’s (AFL - Free Report) second-quarter 2017 earnings of $1.83 per share surpassed the Zacks Consensus Estimate by 12.3% and increased 7% year over year.

Better-than-expected results were driven by favorable performance from the company’s U.S business along with share buyback.

Total revenues remained unchanged year over year at $5.4 billion and fell short of the Zacks Consensus Estimate of $5.48 billion.

Return on equity was 16.5%, up 50 basis points year over year.

Aflac Incorporated Price, Consensus and EPS Surprise

Aflac Incorporated Price, Consensus and EPS Surprise | Aflac Incorporated Quote

Segments Results

At its Japan segment, premium income, net of reinsurance agreements, decreased 2.7% year over year to $3.2 billion. Net investment income, net of amortized hedge costs, decreased 7.9% to $557 million, due to lower reinvestment rates and increased amortized hedge costs.

Total revenue declined 5.7% year over year to $3.8 billion. Pretax operating earnings decreased 1.4% to $791 million. Growth rates in Japan for the second quarter were suppressed as a result of a weaker yen/dollar exchange rate.

The company’s U.S. segment reported a 1.9% year-over-year increase in premium income to $1.4 billion. Net investment income increased 2.3% year over year to $180 million.

Total revenues increased 2.1% year over year to $1.6 billion. The pre-tax operating profit margin for the U.S. segment was 21%, up 200 basis points year over year.  In this segment, the company expects a long-term compound annual growth rate of 3% to 5% in new annualized premium sales.

Dividend and Financial Update

The company spent $800 million on buying back shares in the first half of the year. At the end of the quarter, the company had 15.6 million shares available for purchase under its share buyback authorization.

The company announced 43 cents quarterly dividend which will be paid on Sep 1, 2017, to shareholders of record at the close of business on Aug 23, 2017.

Guidance Affirmed  

The company kept its guidance intact. It expects to buy back $1.3–$1.5 billion worth shares in 2017. EPS is estimated between $6.40 and $6.65, assuming an average exchange rate of 108.70 yen to the dollar in 2016.

If the yen averages 105–115 to the dollar in the third quarter, operating earnings, a non-U.S. GAAP measure, will be approximately $1.51 to $1.69 per diluted share.

Our Take

Aflac’s second-quarter earnings reflected strength in its U.S operations. Company-wide agent distribution, new product launch and ongoing investments in this segment will propel further growth.

Nevertheless, Aflac continues to suffer from low interest rates in its Japan business and though major changes have been made in product mix to address this, currency woes persist. We, therefore, believe that the segment will remain under pressure in the next few quarters.

Zacks Rank and Other Releases

Aflac carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among the other companies that have reported from the same space, Amerisafe Inc. (AMSF - Free Report) , Employers Holdings Inc. (EIG - Free Report) and Unum Group (UNM - Free Report) beat their respective Zacks Consensus Estimates by 13.9%, 11.71% and 3.96%.

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