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Will Aflac's (AFL) Earnings Suffer From Weak Japan Revenue?
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Aflac Inc. (AFL - Free Report) is scheduled to announce second-quarter 2018 results on Jul 26, after the closing bell. Its quarterly revenues and earnings are expected to improve year over year.
The company is expected to benefit from a healthy sales pipeline in its U.S. segment and share buyback, partly offset by soft sales in Japan business and branch conversion cost.
Factors Affecting Q2 Results
The yen-to-dollar exchange rate average for the April- June quarter was 109.09. The company in the first-earnings call said that if the yen averages 100 to 110 to the dollar for the second quarter, adjusted earnings would be approximately between 91 cents and $1.05 per diluted share.
Aflac’s second-quarter results are expected to benefit from increased sales from its U.S. segment. This unit has been performing strongly as evident by increasing revenues since 2010, a trend that continued through the first quarter of 2018. We expect to see strong financial performance and continued strength in the profitability of Aflac U.S. led by the ongoing investment in this business, delivery of value-added services and increased client retention; product partnering to drive improved account values and employee access; and investment in administrative capabilities.
We also expect to see new sales increase in the quarter driven by overall growth of broker distribution and improved growth in the company’s career sales distribution. Broker distribution is expected to drive sales in the mid-case market, an area of focus for the company in 2018. The career sales distribution should drive sales in the small-case market. The Zacks Consensus Estimate for revenues from U.S. business is expected to be $1.61 billion, up 14.8% year over year.
Aflac’s top line remains sufficiently exposed to a challenging operating environment, primarily in Japan. The persistent low interest rate environment has led the company to deemphasize sales of first-sector (life insurance) products in Japan and emphasize sales of third-sector products. However, comparatively, third-sector sales are expected to be down in the first half of the year due to the introduction of one refreshed core medical product in the first quarter of 2017. Sales should, however, be aided by the recent introduction of a new cancer plan. The Zacks Consensus Estimate for revenues from the Japan business is expected to be $3.76 billion, down 1.1% year over year.
The Japan branch conversion cost for the company is expected to come in the low end of its $120 million to $130 million. Through the end of first quarter 2018, the company had incurred $71 million of the total cost. It expected to incur the majority of the remaining cost in the second quarter. Thus expenses will be elevated in the quarter under review.
However, the company’s continued efforts to return capital to its shareholders via share buyback will cushion its bottom line.
Earnings Surprise History
The company boasts an attractive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 7.17%. This is depicted in the chart below:
Our proven model does not conclusively show that Aflac is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1, 2 or 3 for this to happen. But that is not the case here as you will see below.
Earnings ESP: Aflac has an Earning ESP of -0.27%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Though Aflac carries a Zacks Rank #3 (Hold), a negative Earnings ESP makes our surprise prediction difficult.
Stocks Worth Considering
Here are some companies worth considering as our model shows that these possess the right combination of elements to beat estimates this quarter:
Torchmark Corp. will likely report second-quarter 2018 earnings results on Jul 25. The company has an Earnings ESP of +0.34 % and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Amerisafe, Inc. (AMSF - Free Report) has an Earnings ESP of +5.68% and a Zacks Rank of 3. The company is expected to report second-quarter earnings results on Jul 26.
American Financial Group, Inc. (AFG - Free Report) has an Earnings ESP of +1.68%. This Zacks #1 Ranked (Strong Buy) company is expected to report second-quarter earnings results on Aug 1.
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Will Aflac's (AFL) Earnings Suffer From Weak Japan Revenue?
Aflac Inc. (AFL - Free Report) is scheduled to announce second-quarter 2018 results on Jul 26, after the closing bell. Its quarterly revenues and earnings are expected to improve year over year.
The company is expected to benefit from a healthy sales pipeline in its U.S. segment and share buyback, partly offset by soft sales in Japan business and branch conversion cost.
Factors Affecting Q2 Results
The yen-to-dollar exchange rate average for the April- June quarter was 109.09. The company in the first-earnings call said that if the yen averages 100 to 110 to the dollar for the second quarter, adjusted earnings would be approximately between 91 cents and $1.05 per diluted share.
Aflac’s second-quarter results are expected to benefit from increased sales from its U.S. segment. This unit has been performing strongly as evident by increasing revenues since 2010, a trend that continued through the first quarter of 2018. We expect to see strong financial performance and continued strength in the profitability of Aflac U.S. led by the ongoing investment in this business, delivery of value-added services and increased client retention; product partnering to drive improved account values and employee access; and investment in administrative capabilities.
We also expect to see new sales increase in the quarter driven by overall growth of broker distribution and improved growth in the company’s career sales distribution. Broker distribution is expected to drive sales in the mid-case market, an area of focus for the company in 2018. The career sales distribution should drive sales in the small-case market. The Zacks Consensus Estimate for revenues from U.S. business is expected to be $1.61 billion, up 14.8% year over year.
Aflac’s top line remains sufficiently exposed to a challenging operating environment, primarily in Japan. The persistent low interest rate environment has led the company to deemphasize sales of first-sector (life insurance) products in Japan and emphasize sales of third-sector products. However, comparatively, third-sector sales are expected to be down in the first half of the year due to the introduction of one refreshed core medical product in the first quarter of 2017. Sales should, however, be aided by the recent introduction of a new cancer plan. The Zacks Consensus Estimate for revenues from the Japan business is expected to be $3.76 billion, down 1.1% year over year.
The Japan branch conversion cost for the company is expected to come in the low end of its $120 million to $130 million. Through the end of first quarter 2018, the company had incurred $71 million of the total cost. It expected to incur the majority of the remaining cost in the second quarter. Thus expenses will be elevated in the quarter under review.
However, the company’s continued efforts to return capital to its shareholders via share buyback will cushion its bottom line.
Earnings Surprise History
The company boasts an attractive earnings surprise history, having surpassed estimates in each of the trailing four quarters, with an average positive surprise of 7.17%. This is depicted in the chart below:
Aflac Incorporated Price and EPS Surprise
Aflac Incorporated Price and EPS Surprise | Aflac Incorporated Quote
Here is what our quantitative model predicts:
Our proven model does not conclusively show that Aflac is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1, 2 or 3 for this to happen. But that is not the case here as you will see below.
Earnings ESP: Aflac has an Earning ESP of -0.27%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Though Aflac carries a Zacks Rank #3 (Hold), a negative Earnings ESP makes our surprise prediction difficult.
Stocks Worth Considering
Here are some companies worth considering as our model shows that these possess the right combination of elements to beat estimates this quarter:
Torchmark Corp. will likely report second-quarter 2018 earnings results on Jul 25. The company has an Earnings ESP of +0.34 % and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Amerisafe, Inc. (AMSF - Free Report) has an Earnings ESP of +5.68% and a Zacks Rank of 3. The company is expected to report second-quarter earnings results on Jul 26.
American Financial Group, Inc. (AFG - Free Report) has an Earnings ESP of +1.68%. This Zacks #1 Ranked (Strong Buy) company is expected to report second-quarter earnings results on Aug 1.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>