Lincoln National (LNC) Down 8.4% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Lincoln National (LNC). Shares have lost about 8.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lincoln National due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Lincoln National Q2 Earnings Beat on Lower Expenses
Lincoln National reported second-quarter 2023 adjusted earnings of $2.02 per share, which outpaced the Zacks Consensus Estimate by 5.2%. However, the bottom line slipped 5.2% year over year.
Adjusted operating revenues grew 5.7% year over year to $4,730 million. The top line beat the consensus mark by 2.8%.
The better-than-expected quarterly results were supported by a significant decline in expense level and solid contribution from the Group Protection segment. However, the upside was partly offset by weaker performances in Annuities, Retirement Plan Services and Life Insurance businesses.
Costs and Expenses
Total expenses plunged 48.8% year over year to $2,327 million in the quarter under review and remained below our estimate of $3,103.4 million, due to the incidence of a significant MRB gain. Benefits of $2,192 million accounted for 94.2% of the quarter’s overall costs and were above our estimate. Commissions and other expenses rose 10.6% year over year to $1,335 million and were above our model estimate.
Inside Lincoln National’s Segments
The Annuities segment recorded an operating income of $271 million, which decreased 8% year over year and missed the estimate by 6.3%. The metric suffered from reduced prepayment income and increased expenses. Operating revenues of $1,190 million increased 8.5% year over year and comfortably beat our estimate of $973.3 million. Total annuity deposits fell 5.2% year over year to $2,560 million in the quarter under review due to lower variable annuities sales, partially offset by growth in fixed annuities.
Operating income in the Retirement Plan Services segment came in at $47 million, which plunged 14.5% year over year and missed our estimate of $54.1 million due to a decline in prepayment income and an elevated expense level. Operating revenues of $334 million grew 6% year over year in the second quarter and outpaced our estimate of $308 million. Total deposits tumbled 9.5% year over year to $2,897 million.
The Life Insurance segment reported an operating income of $33 million in the quarter under review, falling 47.6% year over year, due to run-rate impact stemming from year-ago annual review of DAC and increased expenses. Operating revenues of $1,760 million inched up 3.2% year over year and comfortably beat our estimate. Total Life Insurance sales dropped 36% year over year to $123 million. Total deposits of $1,333 million fell 8.6% year over year in the second quarter.
The Group Protection segment recorded an operating income of $109 million in the quarter under review, which rose 122.4% year over year and beat our estimate of $80 million. This significant jump can be attributed to better disability and life underwriting results. Operating revenues increased 5.8% year over year to $1,400 million, higher than our estimate of $1,320.9 million. Insurance premiums of $1,263 million rose 6.4% year over year. Sales amounted to $96 million in the segment, which decreased 24% year over year.
Other Operations incurred an operating loss of $106 million in the second quarter, wider than the prior quarter’s loss of $87 million and our estimate of $98.2 million.
Financial Update (as of Jun 30, 2023)
Lincoln National exited the second quarter with cash and invested cash of $3,768 million, which rose from $3,343 million at 2022-end. Total assets of $348.6 billion increased from $334.2 billion at 2022-end.
Long-term debt amounted to $5,954 million, which declined 8.4% year over year. Short-term debt totaled $500 million at the second-quarter end.
Shareholders’ equity of $5,819 million increased from $5,102 million at 2022-end.
Book value per share, excluding accumulated other comprehensive income, came in at $58.58, which fell 14.1% year over year. Adjusted income from operations ROE came in at 12.4%, which improved 160 basis points year over year.
Capital Deployment Update
Lincoln National returned $76 million in the form of common dividends to its shareholders in the second quarter. It did not make any share repurchases in the quarter under review.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
VGM Scores
Currently, Lincoln National has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lincoln National has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Lincoln National Corporation (LNC) : Free Stock Analysis Report
