Unum Group (UNM) reported second-quarter operating income of 79 cents per share, missing the Zacks Consensus Estimate by 3 cents. Earnings improved almost 4% year over year. Operating income was $225.3 million in the quarter, down 4% from $235.0 million in second quarter 2011.
The company experienced soft results at Unum UK, Colonial Life Segment and the Closed Block that led to weaker numbers in the quarter However, solid performances at Unum US was a partial offset. Lower share count due to share repurchases buoyed the bottom line.
The quarter had net realized investment loss of $1.4 million and non-operating retirement-related loss of $7.5 million. Including these one time items, Unum reported net income of $216.4 million or 76 cents per share in the second quarter 2012, comparing unfavorably with $227.6 million or 74 cents per share in the prior-year quarter.
The year-ago quarter includes net realized investment loss of $2.2 million and non-operating retirement-related loss of $5.2 million.
Total revenue in the quarter was $2.62 billion, up 2.1% year over year. The top line surpassed the Zacks Consensus Estimate of $2.61 billion.
Segment Update
Unum US Segment: Segment premium in the quarter was $1.11 billion, up 4.2% year over year.
Operating income increased 3.5% year over year to $212.7 million in the quarter.
Unum UK Segment: Premium decreased 1.5% year over year to $173.2 million in the quarter. In local currency, premium increased 1.5% year over year to £109.4 million.
Segment operating income was $30.0 million in the quarter, down 45.7% year over year.
The benefit ratio was 85.4% in second quarter 2012, up from 69.8% in the prior-year quarter. The higher benefit ratio resulted from unfavorable risk experience in the group disability and group life line of business.
Colonial Life Segment: Premium in the quarter increased 5.3% year over year to $296.9 million.
Operating income decreased 6% year over year to $67.6 million in the reported quarter.
The benefit ratio increased 130 basis points to 52.5%. The increase was due to unfavorable mortality experience in traditional products line.
Closed Block Segment: The segment now includes the results of the closed blocks of individual disability, long-term care and other closed blocks, previously reported in the Corporate and Other segment.
Premium income for the individual disability – closed block line of business decreased 6% year over year. Additionally, premium income for the long-term care line of business increased 4% year over year.
The segment reported an operating income of $25.7 million, down 15.5% year over year. The decline was attributable to lower income from the long-term care line of business, partially offset by higher income from the individual disability line of business.
Corporate and Other Segment: Operating loss of $25.9 million in the reported quarter was wider than the loss of $17.0 million incurred a year ago.
Financial Update
Unum Group ended the quarter with a debt of $1.94 billion, flat with the prior-quarter end.
The debt-to-capital ratio was 23.3%, down 10 basis points from 23.4% as of March 31, 2011.
Book value as of June 30, 2012, was $29.94 per share, up 5.4% from $28.41 as of June 30, 2011.
Share Repurchase
Unum Group spent $125.1 million to buy back 6 million shares in the quarter.
The Board approved a new share purchase program, whereby Unum is authorized to buyback $750 million worth shares through January 2014. This new authorization replaces the previous authorization of $1 billion scheduled to expire in August 2012.
2012 Guidance Reaffirmed
Unum Group expects operating income per share to grow in the lower range of 6% to 12%.
Peer Comparison
AFLAC Inc. (AFL), which competes with Unum, reported second-quarter 2012 operating earnings per share $1.61,which came in line with the Zacks Consensus Estimate, but it modestly surpassed the year-ago quarter’s earnings of $1.55.
Operating earnings climbed 3.9% year over year to $755 million. A stronger yen/dollar exchange rate boosted the operating earnings by 1 cent per share.
Total revenue for the reported quarter spiked up 16.0% year over year to $5.9 billion, but lagged the Zacks Consensus Estimate of $6.23 billion. Despite the ongoing derisking activities and the low-rate environment, total revenue benefited from modest strengthening of the yen against the dollar along with consistent improvement in the U.S. and Japan.
Lincoln National Corp. (LNC), competing with Unum, reported operating earnings of $1.09 per share, handily surpassing the Zacks Consensus Estimate of $1.00 and the prior-year quarter’s earnings of $1.01 a share, primarily on lower share count.
Lincoln’s total revenue climbed 3.3% over the prior-year quarter to $2.9 billion and also breezed past the Zacks Consensus Estimate of $2.82 billion.
Zacks Rank
We maintain our long-term Neutral recommendation on Unum Group. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
AFLAC INC (AFL): Free Stock Analysis Report
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UNUM GROUP (UNM): Free Stock Analysis Report
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