Aflac’s first-quarter earnings in line with expectations

Aflac released first-quarter 2017 earnings that were down compared with the same period a year ago, but company executives said there were good reasons for the declines.

The new numbers should not set off alarms because they are in line with projections the company has been communicating to Wall Street analysts and shareholders.

“We are very happy with the first quarter,” Chief Financial Officer Fred Crawford said Thursday. “We are coming in comfortably ahead of consensus. The way to think about it is it is in line with what we have been communicating publicly and what our plans are — if not a little bit better.”

Revenues for the first quarter decreased 2.6 percent when compared with the revenues from the same period a year ago. Total revenues were $5.3 billion during the quarter, compared with $5.5 billion in the first quarter of 2016.

That translated into lower net earnings compared with the first quarter of 2016.

In the first quarter, the net earnings were $592 million, or $1.47 per diluted share, compared with $731 million, or $1.74 per share, a year ago. The net earnings in the first quarter included pretax net losses of $129 million, or $.31 per diluted share on a pretax basis, compared with pretax net gains of $40 million, or $.09 per diluted share on a pretax basis, a year ago.

The reason for the decline in revenues and earnings can easily be explained, Crawford said.

“The first quarter of last year was a tough comparable,” Crawford said. “The main drivers are — and for good reason — the low interest rate environment in Japan is one we are navigating very carefully, including pulling back on some product lines in Japan where the profitability is sensibly to the low interest rate environment.”

The cause in the U.S. market is a little different, Crawford said.

“In the U.S., it is more of a proactive investment in the platform,” Crawford said. “So, we have been wrapping up our investment in technology in our group business platform, which is our South Carolina business and also in our enrollment technology. We are proactively investing profits into the U.S. platform for future growth and customer experience.”

Aflac Chairman and Chief Executive Officer Dan Amos said the company is pleased with the overall first-quarter performance.

“Our results for the first quarter are consistent with what we communicated on our December outlook call,” he said in the release. “Despite the persistent low-interest-rate environment, Aflac Japan, our largest earnings contributor, generated solid financial results. In yen terms, results on an operating basis were in line with our expectations for the quarter. Additionally, our operation in Japan produced better-than-expected third sector sales results.”

The profitability of the U.S. operation is sound, Amos said in his prepared statements.

“Our results on an operating basis reflect ongoing investment in our platform and are in line with our expectations,” the release stated. “As we’ve communicated, we anticipate a long-term compound annual growth rate of 3 percent to 5 percent in new annualized premium sales. I want to reiterate that as we look ahead, we believe the strategy for growth we implemented in both our career and broker channels is the right one, and we will continue to make tactical adjustments to meet our long-term growth objectives.”

Columbus-based Aflac generates between 75 percent and 80 percent of its revenue from Japan, where it dominates the cancer insurance market and hovers near the top in the medical insurance arena. The sales of medical and cancer products in Japan were strong in the first quarter of 2017, Crawford said.

“That is a dominant product line for us and it’s up substantially, more than 7 percent,” Crawford said. “That is quite a bit better than what we were anticipating coming into the year. That comes on the back introducing some new or refreshed medical products.”

Aflac’s stock closed at $75.05 per share Thursday in trading on the New York Stock Exchange. It was up 25 cents per share. The company will hold its annual shareholders meeting Monday in Columbus.

This story was originally published April 27, 2017 at 4:33 PM with the headline "Aflac’s first-quarter earnings in line with expectations."