Aflac Inc.’s AFL first-quarter 2018 earnings of $1.05 per share surpassed the Zacks Consensus Estimate by 8.25% and increased 25% year over year. Results buoyed on overall favorable pretax margins and a lower effective tax rate as a result of tax reform.
A stronger yen/dollar exchange rate aided earnings per share by 3 cents in the first quarter.
Total revenues for the first quarter increased 2.9% year over year to $5.5 billion but missed the Zacks Consensus Estimate by 0.5%.
Aflac Incorporated Price, Consensus and EPS Surprise
Strong Quarterly Segment Results
Aflac Japan
Total revenues increased 2.7% year over year to $3.9 billion, led by a 5.6% increase in net investment income and a 2.2% rise in premium income. Pretax operating earnings increased 6.4% to $818 million.
Net investment income gained from an increase in investment yield on U.S. dollar investments.
In Japan, third sector (cancer and medical) sales were down 10.4% in yen terms. This was due to the cessation of new cancer sales ahead of the introduction of a new cancer product in April, which was launched after branch conversion.
Aflac U.S.
Total revenues increased 2.2% year over year to $1.6 billion, led by a 2.7% increase in premium income to $1.4 billion and 0.6% higher annualized premium sales. Net investment income decreased 1.7% to $175 million, due to the drawdown of excess capital in the United States.
The pretax operating earnings for the U.S. segment was $337 million, up 8.7%.
Share Repurchase Update
In the first quarter of 2018, the company purchased 6.6 million shares worth $296 million.
At the end of March, the company had 91.4 million shares available for purchase under its share repurchase authorization.
Solid Financial Position
Total investments and cash as of Mar 31, 2018 were $132.7 billion, up 10% year over year.
At the end of the first quarter of 2018, total assets were $147.4 billion, up 10.3% year over year.
Shareholders' equity was $24.3 billion, as of Mar 31, 2018, up 19.7 year over year.
In the first quarter, the annualized return on average shareholders' equity excluding the impact of foreign currency was 15.5%, up 30 basis points year over year.
2018 Guidance Reiterated
The company reiterated (split-adjusted) 2018 EPS guidance of $3.72-$3.88 assuming the average exchange rate in 2017 of 112.16 yen to the dollar. It also guided second-quarter earnings in the range of 91 cents to $1.05 per share.
For 2018, the company anticipates that in its Japan business, third sector earned premium will continue its steady growth in the 2% to 3% range, reflecting Aflac's stable sales and high persistency.
Coming to its U.S. segment, for the full year, Aflac anticipates growth in earned premium within 2% to 3% and new annualized premium sales growth within 3% to 5%, with production skewed toward the fourth quarter.
The company expects to buy back shares worth $1.1-$1.4 billion in 2018.
Aflac also expects to increase overall investment in the U.S. segment by nearly $250 million over three to five years.
Zacks Rank & Other Stocks to Consider
Aflac has a Zacks Rank #2 (Buy). Another player in the same industry Torchmark Corp. (TMK) beat its first-quarter earnings estimates by 2.05%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Here are some companies in the same space also worth considering as our model shows that these possess the right combination of elements to beat estimates this quarter:
American Equity Investment Life Holding Company AEL will likely report first-quarter 2018 earnings results on May 2. The company has an Earnings ESP of +1.61% and carries a Zacks Rank #3.
American Financial Group, Inc. AFG has an Earnings ESP of +2.4%. This Zacks #2 Ranked company is expected to report first-quarter earnings results on May 2.
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