Aflac, seeing solid performance from its insurance sales in Japan and the U.S., reported Monday a fourth-quarter profit of $730 million, up nearly 4 percent from $703 million in the same period of 2014.
However, the late three-month push wasn’t enough to grow the Columbus-based company’s full-year numbers. It posted a profit, or net earnings, of $2.53 billion over the 12 months, which was down 14 percent from $2.95 billion in 2014.
Aflac Chairman and Chief Executive Officer Dan Amos commented in a statement that he was “very pleased” with the company’s overall financial performance for the year.
“Aflac had a very strong quarter, and we finished the year above the top of the range for operating earnings per diluted share, excluding the impact of foreign currency,” he said.
In fact, the company said the perpetual weaker yen-to-dollar exchange rate — which is out of its control — “suppressed” revenues throughout the year. Total revenues were down 3.5 percent, from $5.5 billion to $5.3 billion, in the October-December quarter. They were 8.2 percent lower for the year, coming in at $20.9 billion, off from $22.7 billion in 2014.
The 60-year-old supplemental health and life insurer continued to reward faithful investors in its stock. It boosted its cash dividend 5.1 percent in the fourth quarter, with the company riding a 33-year streak of increasing its dividend. The firm will pay a dividend of 41 cents per share on March 1 for those owning stock on Feb. 16.
“Our objective is to grow the dividend at a rate generally in line with the increase in operating earnings per diluted share before the impact of foreign currency translation,” Amos said.
Operating earnings, which take out one-time items such as investment gains and losses, are a steadier measure of a company’s financial progress, Aflac has said consistently. It also tends to present a more positive picture for investors considering purchasing shares.
That said, the company posted fourth-quarter operating earnings of $668 million, a 15-percent increase from $581 million in the final three months of the year. For 2015 as a whole, operating earnings were $2.7 billion, down 4.5 percent from $2.8 billion in 2014.
Those operating earnings translated to $1.57 per share in the quarter, beating the $1.47 estimate of analysts following the company, according to research firm Thomson Financial. The company’s operating earnings of $6.16 per share bested the $6.06 projected by the experts.
One element of the report that stuck out was Aflac’s continued firm grip on operating expenses, with that category down 4.5 percent in the quarter from a year ago and just under 1 percent year over year.
Robin Wilkey, Aflac’s senior vice president of Investor and Rating Agency Relations, said the long stretch of cash dividends plays a big factor in the company’s desire to maintain tight purse strings.
“It’s one of the reasons why we are very, very expense conscious,” she said. “We know that it’s easy to let expenses get away from you, and we don’t want to be put in that position. So in both the U.S. and Japan we just try to spend our money where it will go the furthest and make the most benefit, and try to be really conservative.”
Wilkey also pointed out that Aflac enjoyed the benefit of having to pay fewer claims both during the quarter and the year. They were down 4.5 percent and 9.2 percent, respectively, with 2015 benefit and claims payouts totalling $11.7 billion, down from $12.9 billion the year before. She said claims simply tend to ebb and flow from quarter to quarter and year to year.
Highlights for Amos during the quarter included the “outstanding” performance in Japan, where the company derives more than 75 percent of its business. Cancer insurance sales, for instance, jumped more than 40 percent for the year.
Amos said the firm’s traditional distribution pipeline, such as sales agencies, were the “key” to the success in Japan. But he also is happy to see Aflac’s partnership with Japan Post paying off, with policies now sold in more than 20,000 of the postal entity’s locations.
Amos also applauded the work accomplished in the U.S., with new annualized premium sales reaching $496 million in the fourth quarter, an all-time record. It translates to a 9.6 percent growth rate in the quarter and an annual sales increase of 3.7 percent for the year.
“I’m encouraged that the changes we made to our career and broker management infrastructure over the last 18 months are laying the foundation for expanded long-term growth opportunities” in the U.S., the CEO said.
Wilkey said the sales force changes made in the U.S. should lead to “stability and growth” for that side of the company’s business in 2016. U.S. sales had been a sore point for Amos, who in 2014 mandated dramatic changes to improve performance.
Aflac, as always, is sensitive to interest rates, which continue to remain extremely low despite a quarter-point increase by the Federal Reserve a few weeks ago and the possibility of more in the coming months. Wilkey also said the Bank of Japan last week announced more monetary measures that pushed rates lower there.
“With the interest rates in the U.S. having gone up a little bit and now going down in Japan, we do plan to invest more in the U.S. to take advantage of the divergence of interest rates,” she said of Aflac’s investment cash flow. Total investments and cash at the end of December was $105.9 billion.
Amos also said the company plans to continue using some of its extra cash to repurchases shares of its common stock, while keeping the dividend stream flowing. The firm bought back 21.2 million shares, or about $1.3 billion worth, in 2015.
“Absent compelling alternatives, we believe that growing the cash dividend and repurchasing our shares are the most attractive means for deploying capital,” the CEO said. “We continue to anticipate that we’ll repurchase $1.4 billion of our shares in 2016, largely front-loaded in the first half of the year.”
The company currently projects it will grow operating earnings per share in 2016 in the range of $6.17 to $6.41, depending on the yen exchange rate.
“I would remind you that with volatile financial markets and interest rates at significantly depressed levels, it is difficult to safely invest cash flows at attractive yields,” Amos cautioned.
Aflac released its financial report Monday after the close of the New York Stock Exchange. Its shares took their lumps prior to the report’s release, sliding $1.45, or 2.5 percent, to finish the day at $56.51. The stock’s 52-week trading range is $51.41 to $66.53.