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Lincoln National (LNC) Q4 Earnings Miss on Higher Benefits Costs

·5 min read

Lincoln National Corporation LNC reported fourth-quarter 2021 adjusted earnings of $1.56 per share, which missed the Zacks Consensus Estimate of $1.98. Also, the bottom line declined from the prior-year figure of $1.78 per share. The profits were affected by increased costs and expenses and lower returns from its alternative investment portfolio in the Life Insurance business.

Adjusted operating revenues increased to $4,769 million for the fourth quarter from $4,655 million a year ago. Also, it beat the consensus mark of $4,687 million. Factors like growing sales, pricing discipline and solid equity market performance benefited the top line.

Lincoln National Price, Consensus and EPS Surprise

Lincoln National Corporation Price, Consensus and EPS Surprise
Lincoln National Corporation Price, Consensus and EPS Surprise

Lincoln National Corporation price-consensus-eps-surprise-chart | Lincoln National Corporation Quote

Costs and Expenses

Total expenses of $4,367 million increased from $4,046 million a year ago, primarily due to higher costs related to benefits, Spark, strategic digitization, and commissions and other. Benefits constitute 51.5% of total expenses.

Segmental Performance

The Annuities segment’s operating income soared to $332 million for the fourth quarter from $289 million a year ago, courtesy of solid equity market performance that paved the way for increased account values. Operating revenues advanced to $1,282 million from $1,163 million in the year-ago period. Total annuity deposits increased 20% year over year to $3,011 million.

The Retirement Plan Services segment reported an operating income of $57 million, which climbed 16.3% year over year. The upside can be attributed to increased account values stemming from robust equity market performance, strong returns from the company’s alternative investment portfolio and consistent expense efficiency. Operating revenues of $335 million rose 3.7% year over year. Total deposits of $3,000 million inched up 17.3% year over year for the quarter under review.

Operating income in the Life Insurance segment amounted to $80 million, down from the prior-year quarter’s $144 million. The decline was caused by lower returns from the alternative investment portfolio. Operating revenues declined 4.4% year over year to $1,844 million. Total Life Insurance sales, however, increased 120.9% year over year to $254 million for the fourth quarter, thanks to the rising sales across all key products.

The Group Protection segment incurred a loss from operations of $115 million, wider than the prior-year loss of $42 million. The results were hurt by elevated mortality and morbidity impacts stemming from the pandemic. Operating revenues of $1,252 million grew 5.7% year over year. Insurance premiums rose 6.5% year over year to $1,117 million. Total sales, however, dipped 14.4% year over year to $385 million for the quarter under review.

Financial Update (as of Dec 31, 2021)

Lincoln National exited the fourth quarter with cash and invested cash of $2,612 million, which increased 52.9% year over year. Total assets of $387.3 billion also increased 5.8% year over year.

Long-term debt at quarter-end amounted to $6,325 million, down 5.3% year over year. Short-term debt was $300 million. As of Feb 2, 2022, its senior debt received ‘A-‘ and ‘BBB+’ ratings from Standard & Poor’s and Fitch, respectively. Shareholders’ equity declined 10.7% year over year to $20,272 million.

Book value per share, excluding accumulated other comprehensive income (AOCI), increased 9% year over year to $78.05.

Adjusted operating return on equity excluding AOCI came in at 8.1% compared with the year-ago figure of 10.1%.

Cash Returned to Shareholders

Lincoln National bought back shares worth $650 million in the fourth quarter. Also, it paid out $78 million in common dividends. Via an accelerated share buyback program, the company used $500 million from its block reinsurance transaction.

Outlook

Even though the ongoing pandemic is likely to continue hurting the company’s results, it is expected to witness rising earnings per share on the back of its Spark Initiative.

Zacks Rank & Key Picks

Lincoln National currently carries a Zacks Rank #3 (Hold). Some better-ranked players in the Finance space include Atlas Corp. ATCO, Enact Holdings, Inc. ACT and Veritex Holdings, Inc. VBTX, each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headquartered in London, Atlas Corp. is a global asset management company. The Zacks Consensus Estimate for ATCO’s bottom line for 2021 indicates a 77.3% increase from the year-ago level. Atlas Corp. beat earnings estimates thrice in the past four quarters and missed once, with the average surprise being 25.7%.

Enact Holdings — headquartered in Raleigh, NC — provides private mortgage insurance products in the United States. The Zacks Consensus Estimate for ACT’s bottom line for the current year indicates a 5.3% increase from the year-ago level. Enact Holdings’ bottom line for the current year has witnessed one upside revision and no downward movement in the past 30 days.

Based in Dallas, TX, Veritex provides multiple commercial banking products and services to different businesses. The Zacks Consensus Estimate for VBTX’s bottom line for 2021 indicates an 11.9% increase from the year-ago level. Veritex beat earnings estimates thrice in the past four quarters and met once, with the average surprise being 10.3%.


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