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Aflac (AFL) Advances After Stronger-Than-Expected Q1

 April 24, 2012 08:28 PM

Aflac Inc. (NYSE:AFL) reported a jump in first quarter earnings helped by a 7.8% growth in its Japan business and stronger yen/dollar exchange rate. Operating earnings and revenue exceeded Street's expectations, sending its shares up 4.76% in aftermarket.

Earnings for the first quarter were $785 million or $1.68 per share, higher than last year's $389 million or $0.83 per share. Operating earnings rose to $814 million or $1.74 per share from $765 million or $1.62 per share.

Operating earnings benefited by $23 million, or $0.05 per share, from the increase in investment income brought about by a one-time receipt of a previously written off deferred coupon negotiated as part of derisking activities in the first quarter.

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The stronger yen/dollar exchange rate increased operating earnings per share by $0.04 during the quarter. Excluding the impact from the stronger yen, operating earnings per share increased 4.9%.

Revenue climbed 21.9% to $6.24 billion, reflecting the benefit from a stronger yen/dollar exchange rate. Analysts had expected a profit of $1.65 per share on revenue of $6.20 billion.

Aflac Japan's revenue in yen were up 7.8% in the first quarter of 2012. Premium income in yen rose 7.8%, and net investment income increased 8.7%. Investment income growth benefited from the receipt of a deferred coupon as previously discussed.

The average yen/dollar exchange rate in the first quarter of 2012 was 79.59, or 3.4% stronger than the average rate of 82.32 last year. Aflac Japan's growth rates in dollar terms for the quarter were magnified as a result of the stronger average yen/dollar exchange rates.

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Reflecting the stronger yen, premium income in dollars rose 12% to $4.1 billion. Net investment income increased 12.5% to $730 million, while total revenues rose 12.0% to $4.9 billion.

Aflac U.S. total revenues rose 5.2% to $1.4 billion in the first quarter. Premium income increased 5.2% to $1.2 billion, and net investment income was up 5.5% to $152 million. Aflac U.S. total new annualized premium sales increased 4.5% to $351 million. First quarter sales benefited from strong performance by the broker channel.

Further, the company said its board of directors declared the second quarter cash dividend of $0.33 per share, payable on June 1 to shareholders of record at the close of business on May 16.

Looking ahead, the company now expects Aflac Japan's full year sales to increase 10%, compared with its previous expectation of a sales decline, as the first quarter has positioned Aflac for another strong year of sales activities in Japan.

Although the company expects the new accounting for DAC to impact earnings by about $0.05 per share, Aflac still expects to produce operating earnings of $6.46 to $6.65 per share before the impact of foreign currency translation, while Street predicts $6.48 per share. This range represents an increase of 3% to 6% over 2011 as restated for the change in DAC accounting compared with its previous 2012 objective of 2% to 5% growth.

The company believes its earnings-per-share objective for 2012 is reasonable and attainable, and Aflac continues to look for better earnings growth in 2013.

AFL closed Tuesday's regular session up 1.55% at $42. The stock has been trading between $31.25 and $57.39 for the past 52 weeks.



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