AFLAC Earned $1.29 per Share
AFLAC (AFL) just reported Q4 operating earnings of $1.29 per share. The weak yen knocked off eight cents per share.
For the year, AFLAC made $6.16 per share which was two cents below what they made in 2013. The weak yen cost them 26 cents per share last year. Ignoring currency, AFLAC’s earnings rose 3.9% last year.
OUTLOOK
Commenting on the company’s fourth quarter results, Chairman and Chief Executive Officer Daniel P. Amos stated: “We are extremely pleased with our sales in Japan and the U.S. More importantly, our 2014 operating earnings per diluted share growth of 3.9% excluding currency was at the high end of our 3% to 4% expectation.
“With 2014 marking Aflac Japan’s 40th year of operations, it is especially impressive that third sector sales increased 28.5% in the fourth quarter, particularly in comparison to strong third sector sales results that came in the fourth quarter of the prior two years. Aflac Japan’s third sector sales growth for the year was 6.1%, which was at the high end of our annual sales target. On the distribution side, our traditional agencies have been, and remain, key to our success. I’m also pleased that we continued to build on our partnership with Japan Post throughout the year, expanding the number of postal outlets and their agents selling our cancer products. Cancer insurance sales through all distribution outlets were up an impressive 176% for the quarter. As we look ahead to 2015, we believe that for the first nine months, third sector sales will average a 15% increase. With fourth quarter sales facing difficult comparisons, we believe third sector sales in the final quarter of 2015 could be down sharply. However, as always, we will be working to find ways to minimize that decline. At the end of the second quarter, when we have more insight, we will give additional guidance on the fourth quarter.
“Turning to Aflac U.S., I am very pleased with our fourth quarter sales results, which surpassed our expectations, increasing 14.1%. The strong fourth quarter sales drove annual sales results to an increase of .7%, which significantly exceeded our most recent sales expectation for the year. It is rewarding to see the changes we made to our sales organization in 2014, both in the career agent channel and the broker channel, yielded such promising results. Although one quarter doesn’t make a trend, I am very encouraged with how far we’ve come in a short period of time. However, I am not willing to say we’ve had a sales turnaround until I see first half sales results in 2015. Saying that, I remain encouraged and believe we should have a 3% to 7% increase in U.S. sales, with a target of 5%.
“Although we have not yet finalized our statutory financial statements, we estimate our 2014 risk-based capital ratio, or RBC, remained very strong and will exceed the third quarter estimate. Additionally, as a result of a significant decline in interest rates that led to substantial unrealized gains in the investment portfolio, Aflac Japan’s solvency margin ratio, or SMR, improved significantly, and we expect that it will be above 850%.
“We entered into a new reinsurance agreement on October 1, which released approximately ¥55 billion of Aflac Japan’s regulatory reserves. Half of that transaction was retroceded to an Aflac Incorporated subsidiary at the end of the year.
“As we have said for many years, we believe that growing the cash dividend and repurchasing our shares are the most attractive means for deploying capital. In 2014, we repurchased $1.2 billion, or 19.7 million of our shares, which is consistent with what we had communicated last October. We currently plan to repurchase $1.3 billion of our shares in 2015. As we indicated last quarter, we also increased the cash dividend 5.4%, effective with the fourth quarter, marking the 32nd consecutive year in which we’ve increased the cash dividend. Our objective is to grow the dividend at a rate generally in line with the increase in operating earnings before the impact of foreign currency translation.
“Once again, I was very pleased that we ended the year with our operating earnings per share at the high end of our 2014 estimate, although that result creates a tougher comparison when we look to 2015. Our objective remains to grow 2015 operating earnings per diluted share before currency 2% to 7%. Because overall financial markets are currently very challenging and interest rates are at significantly depressed levels, it is difficult to invest cash flows at attractive yields. Therefore, we will be very disciplined in selling first sector products in Japan, which will reduce cash flows to investments. I would also remind you that the progression of this year’s benefit ratios in both the U.S. and Japan, which have seen favorable trends, could also have a significant impact on our results. As always, we are working very hard to achieve our earnings-per-share objective while also ensuring we deliver on our promise to policyholders.”
Here’s AFLAC’s EPS range for this year under different yen/dollar ratios:
Eddy Elfenbein is a Washington, DC-based speaker, portfolio manager and editor of the blog Crossing Wall Street. His 