Aflac reports first-quarter profit of $892 million, will pay dividend of 35 cents per share

tadams@ledger-enquirer.comApril 24, 2013 

Steady as she goes.

That was the case Wednesday with Aflac Inc. reporting first-quarter net income, or profit, of $892 million, an increase of nearly 14 percent from $785 million in the same period a year ago.

That translated to earnings of $1.90 per diluted share for the January-March timeframe, up from $1.68 a year ago.

Operating earnings, meanwhile, were $1.69 per share, down from $1.74 per share a year ago, but 7 cents higher than stock market analysts were expecting, according to Thompson Financial surveys.

“Although the underlying strong results were masked by a significantly weaker yen, we are pleased with our overall results in the first quarter of 2013,” Aflac Chairman and Chief Executive Officer Dan Amos said in a statement.

“Aflac Japan produced solid financial results that exceeded our expectations for the quarter,” he said. “While Aflac U.S. sales declined in the quarter, we believe sales will be weighted more toward the latter half of the year.”

Columbus-based Aflac’s profit came on relatively flat total revenue of $6.2 billion in the quarter, nearly identical to the same period a year ago.

“We had no significant investment losses, so we think we’re heading in the right direction on that,” Robin Wilkey, senior vice president of investor relations at Aflac, said of the bad European investments the company dumped in previous quarters as part of a “derisking” effort.

And once gain, a strong dividend will be paid. The firm’s board of directors voted to pay out 35 cents per share to those owning stock by the close of business May 22. The cash dividend is payable June 3.

The company also bought back about 3 million shares of its common stock valued at $150 million. It aims to repurchase $400 million to $600 million of shares before the end of this year. There are 19.4 million stock shares available in the board’s current buyback authorization.

“Given the strength of our capital ratios and parent company liquidity, we are even more comfortable with that range,” Amos said.

At the end of March, Aflac said, its financial coffers held total investments and cash of $107.4 billion, down from $118.2 billion at the end of 2012.

Aflac makes money by supplemental health and life insurance policies to individuals in Japan and the United States. It paid out $3.5 billion in benefits and claims during the quarter. About 75 percent of its business comes from Japan, where consumers are avid and loyal purchasers of insurance policies.

The company reported Wednesday that yen-based revenue was up nearly 10 per cent in the quarter, while premium income was nearly 10 percent higher.

The weakening yen — caused by sliding interest rates in Japan — “suppressed” the dollar value of the earnings, however. That means premium income in dollars was down about 6 percent to $3.9 billion, with net investment income 7.4 percent lower at $674 million. Pretax operating earnings were $989 million, with total revenue $4.6 billion, both nearly 5 percent lower than a year ago.

“The concern (in Japan) continues to be the low interest rate environment,” Wilkey said of the financial atmosphere there that makes investing Aflac’s river of cash flow less lucrative.

“The Bank of Japan is just flooding the environment there” with money, she said. “The economy is such that they want to generate inflation of 2 percent because they’ve been in a deflation environment for so many years. Their economy has been hurting.”

Here in the U.S., meanwhile, premium income was up 4 percent at $1.3 billion, with net investment income 3.4 percent higher at $157 million. That added up to total revenue of nearly $1.5 billion, an increase of 3.9 percent.

Amos said everything in the financial report and the strength he sees in the business points to another good year for Aflac, which is a household name because of its iconic duck advertising campaign.

Said Amos: “I want to reiterate that our objective for 2013 has not changed: To increase operating earnings per diluted share 4 percent to 7 percent, or approximately $6.86 to $7.06 per share, on a currency neutral basis.

“Assuming we achieve our earnings objective and the yen averages 95 to 100 to the dollar for 2013, we would expect to report operating earnings of $5.99 to $6.37 per diluted share for the full year. Additionally, for the second quarter of 2013, using the same currency assumptions, we expect operating earnings will be in the range of $1.41 to $1.56 per diluted share.”

Wilkey noted that the U.S. small business sector doesn’t appear to be healing like it should during a normal economic recovery. Aflac typically derives 90 percent of its business from companies with less that 100 workers.

“That generates more customers for us than any other types of businesses,” she said. “You may see hiring, but the small business optimism out there is very negative.”

Aflac released its quarterly report after the close of the New York Stock Exchange. Its shares were up 89 cents, or 1.7 percent, to $51.56 on the day. The firm’s 52-week trading range is $38.13 to $54.93 per share.

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