Aflac reports operating profit of $707 million on revenues of $5.4 billion in second quarter

It was steady as she goes for Aflac in the second quarter, with the Columbus-based insurer reporting an operating profit of $707 million on total revenues of $5.4 billion from its business in Japan and the United States.

Aflac Chairman and CEO Dan Amos, in a statement with the firm’s earnings report, said he was pleased with the results, which “reflected solid performance and advanced our progress toward achieving the company’s objectives for 2016.”

The overall profit numbers translate to earnings per share of $1.71, which is 14 percent higher than the $1.50 per share posted by the company in the April-June period a year ago. Wall Street analysts who follow Aflac were expecting $1.68 per share. The overall operating earnings of $707 million were up 8.6 percent from $651 million in the same three-month period of last year.

Operating earnings don’t include one-time financial items such as investment gains and losses and hedging activities. When those are taken out of the current report, Aflac’s net earnings, or profit, was $548 million, or $1.32 per diluted share, in the second quarter versus $573 million, or $1.32 per share, in the same period a year ago.

Amos said the supplemental health and life insurer is still shooting for operating earnings per share between $6.17 and $6.41 for all of 2016, depending on the exchange rate between the Japanese yen and U.S. dollar. The yen exchange rate was stronger in the second quarter than it has been despite negative interest rates in the Asian nation.

The CEO also said the firm is in good position to complete its repurchase goal of $1.4 billion in Aflac common stock this year. It already has bought back 16 million shares valued at $1 billion through the first half of this year. About $400 million, or 5.9 million shares, were repurchased in the second period.

“We remain committed to maintaining strong capital ratios on behalf of our policyholders,” he said of the company’s capital position. Total investments and cash as of June 30 were $126 billion, up from $114.3 billion at the end of March.

Shareholders also should be pleased, with Aflac’s board of directors approving a third-quarter cash dividend of 41 cents per share for those owning stock as of Aug. 24, with the dividend payable Sept. 1.

The company’s stock has been trending well in recent weeks as well, with it pushing as high as $74.14 per share. The stock closed down 10 cents to $73.26 in trading Thursday on the New York Stock Exchange. The 52-week low is $51.41 per share.

Breaking down the Japan and U.S. markets, the company said insurance premium income rose 14.3 percent over last year’s second quarter to $3.4 billion in the Asian nation, while net investment income was up about 6 percent to $642 million. Total revenues were up nearly 13 percent to $4.1 billion. Pretax operating earnings came in at $839 million, nearly 11 percent higher. Through the first six months of 2016, premium income was $6.6 billion (up 8.7 percent), net investment income was $1.3 billion (up 3.8 percent), total revenues were $7.9 billion (up 7.9 percent) and pretax operating earnings came in at $1.7 billion (6.4 percent higher).

Amos singled out an 11.2 percent increase in “third sector product” sales in Japan during the quarter, a category that includes cancer and medical products not connected to the lower interest rates there. In contrast, sales of rate-sensitive policies such as life insurance and child endowments, are falling as the company looks to reprice them.

“I would reiterate that long-term, we continue to believe the compound annual growth rate for third sector sales will be in the range of 4 percent to 6 percent,” he said.

Sales for Aflac U.S., meanwhile, were “below our expectations,” Amos said, with the company banking on enough improvement in the fourth quarter of this year to reach its target of increasing sales between 3 percent and 5 percent for the year.

Premium income in the United States was up 2.2 percent to $1.4 billion in the second quarter from the same period a year ago, while net investment income was 4.4 percent higher at $176 million. Total revenues came in at $1.5 billion, up 2.5 percent, with pretax operating earnings at $291 million, down a third of 1 percent. Through the first six months, premium income was $2.7 billion (up 2.2 percent), net investment income was $350 million (up 4.7 percent), total revenues were $3.1 billion (up 2.4 percent) and pretax operating earnings came in at $623 million (8 percent higher).

“In the second half of the year, as we continue to focus on initiatives designed to drive future growth, our expectation is to increase spending, particularly related to promotional and (information technology) expenditures,” Amos said. “I would remind you that the low interest rate environment continues to be challenging for investments, especially with negative interest rates in Japan, making it difficult to invest cash flows at attractive yields while maintaining a prudent risk tolerance.”

Taking a quick look at Aflac’s results through the first six months of this year, the company posted operating earnings of $1.4 billion, or $3.44 per diluted share, up from $1.3 billion, or $3.04 per share, in the January-June timeframe a year ago. Net earnings, taking out the one-time financial items, were $1.3 billion, or $3.06 per share, up from $1.2 billion, or $2.83 per share. That was on total revenues of $10.9 billion, a 3.6 percent increase over the $10.5 billion the firm recorded in the first half of 2016.

This story was originally published July 28, 2016 at 5:07 PM with the headline "Aflac reports operating profit of $707 million on revenues of $5.4 billion in second quarter."