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Aflac's (AFL) Q4 Earnings Surpass Expectations, Improve Y/Y

Aflac Inc.’s AFL fourth-quarter 2017 earnings of $1.60 per share surpassed the Zacks Consensus Estimate by 3.2% and increased 11.1% year over year. The upside was backed by solid performance of its U.S. segment.

Net earnings were $5.95 in the fourth quarter compared with $1.84 in the year-ago quarter. The upside was primarily backed by an estimated $1.7 billion or $4.30 per share benefit from the recent U.S. tax reform.

For 2017, operating earnings came at $6.81 per share. The figure not only beat the Zacks Consensus Estimate of $6.76 but also improved 4.8% year over year, excluding the negative impact of 10 cents per share from a weaker yen.

Total revenues for the fourth quarter declined 10% year over year to $5.4 billion and missed the Zacks Consensus Estimate by 0.3%.

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For 2017, total revenues came at $21.7 billion, down 4% year over year.

Quarterly Segments Results

Aflac Japan

Total revenues declined 5.9% year over year to $3.7 billion. Pretax operating earnings increased 5.1% to $747 million.

Premium income, net of reinsurance agreements, decreased 6.7% year over year to $3.1 billion. The downside happened as growth in third sector premium was more than offset by an expected reduction in first sector premium.

Net investment income, net of amortized hedge costs, decreased 1.1% to $559 million due to the foreign currency impact of U.S. dollar-denominated investments.

Growth rate in Japan for the fourth quarter was suppressed due to 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 2.2% year-over-year increase in premium income to $1.4 billion. Net investment income increased 2.8% to $182 million.

The pretax operating earnings for the U.S. segment was $288 million, up 9.9% due to a lower year-over-year expense ratio. 

Share Repurchase Update

In the fourth quarter of 2017, the company purchased 3.9 million shares worth $331 million.

In 2017, it bought back 17.8 million of its common shares worth $1.35 billion.

At the end of 2017, the company had 49 million worth board approved share repurchase authorization remaining.

Dividend Update

Aflac’s board of directors announced a 15.6% hike in the quarterly cash dividend.  The increased dividend of 52 cents per share will be paid on Mar 1, 2018, to shareholders on record as of Feb 21, 2018.

Aflac Incorporated Price, Consensus and EPS Surprise

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

Financial Update

Total investments and cash as of Dec 31, 2017 were $123.6 billion, up 6.3% from the end of 2016.

At the end of 2017, total assets were $137.2 billion, up 5.7% from the 2016 year-end.

Shareholders' equity was $24.4 billion, as of Dec 31, 2017, up 19% from year-end 2016.

In the fourth quarter, the annualized return on average shareholders' equity excluding the impact of foreign currency was 13.3%, down 10 basis points year over year.

2018 Guidance

The company expects to generate earnings per share for 2018 within $7.45 to $7.75.

In 2018, the company expects third sector earned premium of its Japan segment to continue its steady growth in the 2% to 3% range. This reflects Aflac's stable sales and high persistency in Japan.

Coming to its U.S. segment, in the year, Aflac anticipates growth in earned premium to lie within 2% to 3% and new annualized premium sales growth to range within 3% to 5%.

The company expects to buy back shares worth $1.1-$1.4 billion in 2018.

Aflac also expects to increase overall investment in the U.S. segment by nearly $250 million over three to five years.

Our Take

Aflac’s fourth-quarter earnings reflect strength in its U.S. operations. Company-wide agent distribution, new product launch and ongoing investments in the U.S. operations segment are also expected to propel further growth.

However, although the company’s operation in Japan is exposed to foreign exchange fluctuations, its stable sales and persistency in the segment raise optimism.

Zacks Rank

Aflac has a Zacks Rank #2 (Buy). 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 other players in the insurance industry that have reported fourth-quarter earnings, the bottom line of Brown & Brown, Inc. BRO, MGIC Investment Corporation MTG and The Progressive Corporation PGR beat their respective Zacks Consensus Estimate.

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