Better-than-expected sales in Japan propelled Aflac’s earnings higher in the fourth quarter and in all of 2012, the Columbus-based company reported today.
But the performance — operating earnings of $697 million for the quarter and $3.1 billion for the year — will be a tough act to follow in 2013, the firm conceded.
“After three years-plus of strong sales growth, you can’t keep growing in the way that we’ve been growing” in Japan, said Robin Wilkey, senior vice president of investor relations at Aflac. “The question is how much is it going to fall off? It may fall off 20 percent; it may fall off 50 percent.”
She explained that with interest rates starting to climb in Japan, sales the company have made through banks in the Asian nation could easily take a hit as investment firms use those same banks to peddle interest rate-sensitive products.
“The banks are an independent sales channel. If it were our channel, we would have more of an ability to actually do something with them,” said Wilkey of the wild card in Japan, a situation that could lead to Japanese banks swinging their sales forces to more profitable investment-type business.
“We don’t have the ability to know how much they’re going to stop selling our products and sell somebody else’s products,” she said.
But don’t jump to the conclusion that Aflac’s cash stream is going to dry up. Dan Amos, Aflac chairman and chief executive officer, in a statement, said even with the headwinds, sales of cancer and medical policies in Japan will be flat to up 5 percent in 2013. The company also projects its supplemental accident short-term disability policy sales will perform the same — flat to up 5 percent.
“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,” Amos said.
On top of that, Aflac, which was founded in 1955 and is headquartered on Wynnton Road in Columbus, is entering its 31st straight year of returning a dividend to those owning shares of its stock.
The company said today it’s board of directors have approved a dividend of 35 cents per share, payable March 1 to those holding its stock by Feb. 15.
“In this kind of environment, most people would give up a lot in order to take 31 years of consecutive improvement,” Wilkey said.
In another move that improves the value of those owning its shares, Aflac noted it resumed buying back shares in the fourth quarter, $100 million in all, with plans to continue that in 2013.
“Understand, unless an extraordinary event occurs, we intend to purchase a minimum of $400 million of our shares this year,” Amos said. The company said the total buyback could reach $600 million this year.
Breaking down the basics behind today’s report, Aflac posted fourth-quarter operating earnings of $697 million, or $1.48 per share. That’s up from $684 million, or $1.45 per share, in the October-December period a year ago.
That met the consensus expectations of the nearly two dozen Wall Street analysts who follow Aflac, according to a survey by research firm Thomson Financial.
For all of 2012, operating earnings were $3.1 billion, or $6.60 per share, up from $2.9 billion, or $6.27 per share. That actually beat analysts’ projections by a penny.
Total revenue in the fourth quarter came in at nearly $6.4 billion, up from just under $6 billion in the same period a year ago. For the year as a whole, total revenue reached $25.3 billion, up from nearly $22.2 billion in 2011.
On the dividend side, Aflac paid $1.34 per share in 2012, nearly 9 percent better than the $1.23 per share it dished out in 2011.
Operating earnings do not include specific items or events that impact the company. For instance, Aflac reported after-tax investment loses of $217 million in 2012, some of which were connected to impairments — or writing down the value — of its holdings in the Republic of Tunisia in northern Africa, as well as investments in UniCredit SpA (HVB Funding Trusts), an Italian financial firm.
Taking out one-time financial events such as those, Aflac’s net earnings in the fourth quarter were $581 million, or $1.24 per share, up from $538 million, or $1.16 per share, in the same three-month period a year ago.
For the full year, net earnings registered nearly $2.9 billion, or $6.11 per share, up from $1.9 billion, or $4.16 per share, in 2011.
Aflac generates about 80 percent of its earnings from sales in Japan. That means politics matter greatly, with newly elected Prime Minister Shinzo Abe remarking that he intends to push interest rates higher in Japan to end deflation. That move by the Japanese leader will impact the firm’s bank sales outlets in that country, Wilkey said.
In the U.S., meanwhile, 90 percent of the company’s sales come from small businesses. She said that sector is still hurting from a sluggish economy.
“We still do not see small businesses coming back,” she said. “These issues behind small businesses are ones that keep us from being able to return to a normal-sized sales channel.”
A major positive in 2012, however, was Aflac’s ability to increase “persistency,” said Wilkey. That means keeping policies renewed and on the books. Japanese citizens are cautious and tend to renew their premiums, she said. In the U.S., uncertainty about jobs and the Affordable Healthcare Act make it a more difficult task to get people to renew.
Still, she said, “Aflac has done a great job in actually working these accounts to ensure they stay on the books. We found the soft spots and I think we’ve done much better.”
On the employee front, Aflac said today it has 9,073 employees in the U.S. and Japan. Of the 4,324 in the U.S., 3,970 earn a paycheck in Columbus.