With mounting headwinds coming in 2014, Columbus-based supplemental insurance company Aflac announced expected third-quarter operating earnings of $687 million on Tuesday.
Company officials reiterated that Aflac expects to increase earnings for 2013 by 5 percent over last year. But officials also telegraphed a similar-to-smaller earnings increase in 2014. The company, announcing next year's projections earlier than normal, said that it expects earnings next year to increase by 2 to 5 percent.
Chairman and CEO Dan Amos addressed the earnings per share issue in the company's release.
"It is important to note that absent certain headwinds and tailwinds, our 2014 EPS growth rate objective would have been comparable with our 2013 EPS growth rate," Amos said in a prepared statement. "As we look to the future, we anticipate the headwinds we face in 2014 will diminish significantly in 2015. We continue to believe we are well-positioned in the two best insurance markets in the world."
Aflac sells in the U.S. and Japan, where 80 percent of its business is conducted.
The quarterly operating earnings were $1.47 per share. That is a nearly 17 percent decrease from operating third-quarter earnings a year ago. Wall Street analysts were projecting this quarter's operating earnings at $1.48 per share.
Robin Wilkey, senior vice president of investor relations, said although Aflac just missed the Wall Street projection it did meet hit the mark it expected.
"Though we were a penny below consensus, the most important thing is we are reiterating the 5 percent growth on the year, and we are going to be there."
In the second quarter results announced in July, Aflac reported earnings per share of $1.62, which was well above the $1.51 per share expected by analysts.
"We said at the end of the second quarter when we were ahead of the (Wall) Street expectations, that our expenses in the second half of the year were going to escalate," Wilkey said.
Just as the earning fell, so did the overall revenue. Reflecting the weaker yen/dollar exchange rate, total revenues fell 14 percent to $5.9 billion during the quarter. That is compared with $6.8 billion in the third quarter of 2012.
Aflac U.S. sales declined 1.5 percent in the third quarter, leading to a decrease of 1.7 percent for the first nine months of the year.
"While the unemployment rate has shown some signs of improvement, hiring remains weak, especially at smaller employers where 90 percent of our business is written," Amos said. "We believe the need for our products remains very strong and are taking measures to better reach potential customers. We continue to work on enhancing distribution capabilities, including initiatives that benefit our field force and the broker community."
There were some positive numbers on the U.S. side. Premium income increased 3.1 percent to $1.3 billion in the third quarter. Net investment income was up 4.2 percent to $159 million. Total revenues increased 2.9 percent to $1.5 billion.
Wilkey said there was some good news in the third-quarter numbers.
"For the local investor, the dividend has increased 5.7 percent," Wilkey said. "That is the 31st consecutive year we have done that."
The dividend will be 37 cents per share to shareholders of record on Nov. 20. The dividend will be payable Dec. 2.
The company also announced it expects to be more aggressive in its stock repurchase plan this year and next. The company had announced it would repurchase between $400 million to $600 million worth of stock this yea. That amount will now be $800 million, according to the earnings release. Next year, Aflac could repurchase between $800 million and $1 billion.
It is positive news for institutional investors that own about 70 percent of the Aflac stock. The pension funds and money management funds benefit from the repurchase.
"What they want in addition to the dividend is they look to the repurchase plan because it reduces the number of outstanding shares and makes each share more valuable," Wilkey said.
Aflac stock rose 53 cents to $67 per share in trading Tuesday on the New York Stock Exchange. The earnings were released after the market closed.