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Aflac (AFL) Earnings Beat Estimates in Q3, Revenues Miss

Zacks Equity Research

Aflac Inc.’s AFL third-quarter 2017 earnings of $1.70 per share surpassed the Zacks Consensus Estimate by 4.9% and decreased 2.3% year over year. The decline was attributable to a weak exchange rate.

Total revenues declined 3.5% year over year to $5.5 billion and fell short of the Zacks Consensus Estimate by 0.8%.

Aflac Incorporated Price, Consensus and EPS Surprise

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

Segments Results

Aflac Japan

Total revenues declined 10.5% year over year to $3.8 billion (yen 419 billion). Pretax operating earnings decreased 9.6% to $748 million.

At its Japan segment, premium income, net of reinsurance agreements, decreased 3.5% year over year to $3.1 billion ( yen 355.3 billion) as savings products reached premium paid-up status in the quarter. Net investment income, net of amortized hedge costs, increased 1.1% to $0.6 million (yen 62.5 billion) due to the foreign currency impact of U.S. dollar-denominated investments.

Growth rates in Japan for the third quarter were suppressed as a result of a weaker yen/dollar exchange rate.

Aflac U.S.

Total revenues increased 2.1% year over year to $1.6 billion.

The company’s U.S. segment reported a 2.1% year-over-year increase in premium income to $1.4 billion. Net investment income increased 2.8% year over year to $181 million.

The pretax operating profit margin for the U.S. segment was 20.1%, down 80 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 throughout 2019.

Share Repurchase and Dividend Update

In the third quarter of 2017, the company purchased 2.7 million shares worth $219 million. At the end of the quarter, the company had 53 million worth shares available for purchase under its share buyback authorization.

The company announced 45 cents quarterly dividend, up 4.7% from the prior-year quarter, which will be paid on Dec 1, 2017, to shareholders of record at the close of business on Nov 15, 2017.

Financial Update

Total investments and cash as of Sep 30, 2017 were $122.5 billion, down 5% from the end of September 2016.

Total assetswere $136.1 billion, down 5.6% from the prior-year quarter.

Shareholders' equity was $22.0 billion, as of Sep 30, 2017, down 3.5% from year-end 2016.

Return on equity was 15.4%, down 110 basis points year over year.

Guidance Updated

The company expects earnings per share for 2017 within $6.75 to $6.95 compared with the earlier projected range of $6.40-$6.65.

If the yen averages 105–115 to the dollar in the fourth quarter, operating earnings, a non-U.S. GAAP measure, will be within $1.42 to $1.66 per diluted share.

The company expects to buy back shares worth $1.3–$1.5 billion in 2017.

Our Take

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

However, the company’s operation in Japan is exposed to foreign exchange fluctuations that continue to raise concerns.

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.

Performance of Other Companies in the Finance Sector

Among the other firms in the medical sector that have reported their third-quarter earnings so far, American Express Company AXP, Nasdaq NDAQ and Discover Financial Services DFS beat their respective Zacks Consensus Estimate.

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