Aflac held its own in Japan during the fourth quarter of 2013, while sales growth in the U.S. continued to disappoint amid an uncertain U.S. economy.
The various factors surrounding the Columbus-based health and life insurer all added up to it reporting Tuesday a profit, or net earnings, of $675 million in the October-December period. That’s 16 percent higher than the $581 million posted by the company in the same quarter a year ago.
Aflac Chairman and Chief Executive Officer Dan Amos, in a statement, said he was “very pleased” with his firm’s financial performance in both the quarter and the full year despite several issues impacting its operation.
“As the year progressed, operating earnings per diluted share were better than expected, and we finished the year slightly ahead of our expectation for operating earnings to increase 5 percent, excluding the impact of the yen,” he said.
Where most investors are concerned, Aflac boosted its quarterly cash dividend by 5.7 percent, marking the 31st year in a row the shareholder payout has increased.
The ever-so-weak conversion rate of the Japanese yen to U.S. dollars did deal a blow — on paper at least — to the insurer’s total revenues both in the quarter and for the year. Revenues were $5.8 billion over the final three months, down 9 percent from $6.3 billion the year prior.
The same effect was true for all of 2013, with net earnings, or profit, coming in at $3.1 billion, up just over 10 percent from $2.8 billion in 2012. But total revenues for 2013 were $23.9 billion, down 5.6 percent from $25.3 billion the year before.
Aflac points out that it does not transfer much money at all out of Japan, with the yen-to-dollar impact simply being reported on paper, with no conversion ever taking place. The yen-to-dollar rate in the fourth quarter of 2013 was nearly 20 percent weaker than that of the year before, it said.
The company, headquartered on Wynnton Road in Columbus, does about 80 percent of its business in Japan, with about 80 percent of the Asian nation’s population purchasing supplemental insurance. That compares to about 10 percent of the U.S. population doing so. Aflac policies pay clients cash if they suffer an illness or accident.
The earnings report issued by Aflac Tuesday included a variety of investment gains and losses, although nothing major like those it had experienced from the European economic crisis a couple of years ago. That’s why the company also reports operating earnings, which take out such one-time charges that can mask the overall cash flow and performance.
That said, operating earnings for the fourth quarter were $651 million, down 6.8 percent from $697 million in the same period a year ago. For all of 2013, operating earnings were $2.8 billion, down 6.8 percent from just under $3 billion in 2012. And, yes, the yen conversion rate impacts those numbers, with the company saying without that factor, operating earnings would have increased 5.4 percent in the quarter and 4.7 percent for the year.
The operating earnings translated to $1.40 per share in the quarter and $6.18 per share for the year. Each of those figures beat by a penny the estimates of Wall Street analysts surveyed by Thomson Financial.
Amos called the financial results in Japan “solid,” although new premium sales in the quarter and year were “down significantly” because of price increases in April. The company has started its rollout of sales through Japan Post Holdings, with about 1,500 of the 20,000 postal outlets now peddling Aflac policies.
The CEO said U.S. operations performed well both in the quarter and for the year, although he signaled that not all is well with the overall American market.
“We remain disappointed with sales growth in the United States,” he said. “With more than 90 percent of our accounts coming through the small business market, continued low levels of optimism have prompted small employers to remain guarded in their hiring outlook, which limits our universe of potential new policyholders. Additionally, ongoing uncertainties around health care reform implementation have prompted many businesses and consumers to defer decisions related to health care coverage.”
Aflac expects to make “sizeable expenditures” this year in both its U.S. and Japan “operational infrastructure” to prime the pump for future policyholder sales. That is among the financial “headwinds” the company faces in 2014, Amos said, along with an environment of low interest rates in Japan and an increase in the Japanese consumption tax from 5 percent to 8 percent. The tax is charged on agent commissions, which the firm plans to pick up itself.
“As we look ahead to 2014 sales opportunities, we expect Aflac U.S. sales to be flat to up 5 percent,” Amos said. “We expect Aflac Japan sales of third sector cancer and medical products to be up 2 percent to 7 percent. I want to reiterate that our primary financial objective for 2014 is to increase operating earnings per diluted share 2 percent to 5 percent on a currency neutral basis.”
The CEO said he expects the challenging “headwinds” the company will experience this year to “diminish significantly” in 2015.“We continue to believe we are well positioned in the two best insurance markets in the world,” he said.”
The company said it also repurchased $800 million of its stock in 2013, or 13.2 million shares, a move that should make stock shares still on the market more valuable over time. Amos said the share buybacks will continue.
Aflac released its earnings data after the New York Stock Exchange’s close on Tuesday, with shares rebounding from Monday’s frantic stock market decline. Shares rose 75 cents, or 1.2 percent, to $61.47. The 52-week trading range for Aflac is $48.17 to $67.62 per share.