Aflac (AFL) Q2 Earnings Beat, Revenues Miss; View Retained

Aflac Incorporated’s (NYSE:AFL) second-quarter 2016 operating earnings per share of $1.71 beat the Zacks Consensus Estimate of $1.68 by about 1.8% and improved 14% year over year.

Including one-time items, Aflac’s net income in the reported quarter stood at $1.32, which remained flat year over year.

Total revenue inched up 2.8% year over year to $5.4 billion. The top-line improvement is attributable to a stronger yen-dollar exchange rate. Revenues missed the Zacks Consensus Estimate of $5.5 billion.

Total acquisition and operating expenses declined 8.6% year over year to $1.3 billion, while benefits and claims increased 10.8% year over year to $3.3 billion.

Detailed Analysis

Total revenue from Aflac Japan rose 12.9% year over year to $4.1 billion. Premium income increased 14.3% to $3.4 billion during the quarter, while investment income jumped 6.1% to $642 million. Pre-tax operating earnings were up 10.8% from the prior-year quarter to $839 million.

Aflac U.S. generated revenues of $1.5 billion, up 2.5% from the prior-year quarter. Net investment income grew 4.4% to $176 million, while premiums rose 2.2% to $1.4 billion. Consequently, total new annualized premium sales in Aflac U.S. inched up 1% to $347 million. Pre-tax operating earnings in the U.S. dipped 0.3% year over year to $291 million.

Financial Update

As of Jun 30, 2016, total investment and cash increased 21.9% year over year to $126 billion. Shareholders’ equity soared 32.5% year over year to $22.6 billion.

Dividend Update

Aflac’s board of directors declared third-quarter 2016 cash dividend of 41 cents per share. The dividend is payable on Sep 1 to shareholders on record at the close of business on Aug 24, 2016.

Share Repurchase Update

In the second quarter, the company spent $400 million to buy back 5.9 million common shares. At end of Jun 2016, the company had 32.3 million shares remaining under its authorization.

Guidance Reiterated

Aflac reiterated its 2016 guidance. The company expects operating earnings per share between $6.17 and $6.41. The same for the third quarter is expected in the range of $1.58–$1.86 per share.

For 2016, the company anticipates the new annualized premium growth for Aflac U.S. in the range of 3–5%.

For Aflac Japan, the company expects the sales of third-sector products to be in the range of down 3% to up 2%. The long-term CAGR is expected in the range of 4–6%.

Aflac also intends to repurchase $1.4 billion worth common stock through 2016.

Zacks Rank and Performance of Other Insurers

Currently, Aflac holds a Zacks Rank #2 (Buy). Among the other players from the insurance industry that have reported their second-quarter earnings so far, the bottom line at RLI Corp. (NYSE:RLI) and Progressive Corp. (NYSE:PGR) missed their respective Zacks Consensus Estimates, while Brown & Brown Inc.’s (NYSE:BRO) earnings beat the same.

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