It has been about a month since the last earnings report for Aflac (AFL). Shares have added about 7.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Aflac due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Aflac Q2 Earnings Beat on Strong Investment Income
Aflac Incorporated reported second-quarter 2024 adjusted earnings per share of $1.83, which beat the Zacks Consensus Estimate by 15.1%. Also, the bottom line increased 15.8% year over year.
Aflac’s revenues decreased from $5.2 billion in the year-ago quarter to $5.1 billion in the quarter under review. However, the top line beat the consensus mark by 17.4%.
The better-than-expected quarterly results were supported by lower benefits and claims, operating expenses and higher investment income, signaling its effective investment strategies. Moreover, premium sales figures improved in both segments. However, a decline in net earned premiums in the Japan segment partially offset the positives.
Q2 Performance
Adjusted net investment income increased 15.8% year over year to $1 billion.
Total net benefits and claims of $1.9 billion decreased 8.4% year over year in the second quarter. Total acquisition and operating expenses decreased 4.1% year over year to $1.2 billion.
Pre-tax earnings rose 10.6% year over year to $2 billion in the second quarter.
Inside AFL’s Segments
Aflac Japan: The segment’s adjusted revenues decreased 9.7% year over year to $2.4 billion in the quarter under review. This beat the Zacks Consensus Estimate by a small margin. Total net earned premiums of $1.7 billion dropped 16.9% year over year due to limited pay products attaining paid-up status and the implementation of a reinsurance transaction earlier. This metric missed the Zacks Consensus Estimate by 4.7%.
Adjusted net investment income increased 13.8% year over year to $725 million due to higher variable investment income, the impact of the weakening Yen and lower hedge costs. Pre-tax adjusted earnings of the segment amounted to $864 million, which increased 5.1% year over year in the second quarter. This metric beat the consensus mark by 11.6%.
New annualized premium sales of $108 million improved 4.5% year over year due to strong new first-sector sales. The benefit ratio of the segment was 66.9% in the second quarter.
Aflac U.S.: The segment’s adjusted revenues increased 1.3% year over year to $1.7 billion in the quarter under review. However, this missed the Zacks Consensus Estimate by 0.6%. Total net earned premiums climbed 2.1% year over year to $1.5 billion due to sales recovery. This metric missed the Zacks Consensus Estimate by 0.2%.
Adjusted net investment income of $218 million climbed 7.4% year over year on the back of increased variable investment income and a move toward higher-yielding fixed-income investments. Moreover, the metric beat the Zacks Consensus Estimate by 3.7%. Pretax adjusted earnings of the segment were $383 million, up 3.8% year over year in the second quarter thanks to lower expenses, partly offset by higher benefits recognized. The metric beat the Zacks Consensus Estimate by 8.1%.
Aflac’s U.S. sales of $331 million rose 2% year over year. The second-quarter benefit ratio came in at 46.7%.
Financial Position (as of Jun 30, 2024)
Aflac exited the second quarter with total cash and cash equivalents of $6.1 billion, which increased from $4.3 billion at 2023-end. Total assets fell to $120.2 billion from $126.7 billion at 2023-end.
Adjusted debt increased to $7.2 billion from $6.8 billion at 2023-end. Adjusted debt to adjusted capitalization, excluding accumulated other comprehensive income, was 19.5%, which improved 20 basis points (bps) from 2023-end. While it has no debt maturities in less than a year, total debt maturities worth $1.8 billion are expected within the next five years.
Total shareholders' equity of $26 billion increased from $22 million at 2023-end.
Adjusted book value per share increased 12.1% year over year to $52.26. Adjusted return on equity, excluding foreign currency impact of 14.8%, improved 90 bps year over year.
Capital Deployment
Aflac bought back 9.3 million shares worth $800 million in the second quarter. It had 59.2 million shares left for buyback as of the second-quarter end.
Management announced dividends of 50 cents per share for the third quarter. The dividend will be paid out on Sep 2, 2024, to shareholders of record as of Aug 21.
Outlook
Aflac estimates improved sales in its Japan business for 2024, buoyed by its focus on third-sector products, introducing these to younger customers and sales campaigns. Management also remains optimistic about profitable growth within its U.S. business. Improving productivity, underwriting discipline and expense management are likely to bolster its margins. New products and distribution strategies are expected to benefit both segments.
It expects the benefit ratio in the Aflac Japan unit to stay within 66-68% in 2024, while the same in Aflac U.S. is likely to be in the 45-47% range.
The expense ratio for Aflac Japan and Aflac U.S. are estimated to stay within 19-21% and 38-40%, respectively, in 2024.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
VGM Scores
Currently, Aflac has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Aflac has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Aflac belongs to the Zacks Insurance - Accident and Health industry. Another stock from the same industry, Amerisafe (AMSF), has gained 6.1% over the past month. More than a month has passed since the company reported results for the quarter ended June 2024.
Amerisafe reported revenues of $76.01 million in the last reported quarter, representing a year-over-year change of +3.4%. EPS of $0.58 for the same period compares with $0.73 a year ago.
Amerisafe is expected to post earnings of $0.56 per share for the current quarter, representing a year-over-year change of -8.2%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.6%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Amerisafe. Also, the stock has a VGM Score of F.
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