Why Is Aflac (AFL) Down 0.2% Since Last Earnings Report?

It has been about a month since the last earnings report for Aflac (AFL). Shares have lost about 0.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Aflac due for a breakout? 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 drivers.

Aflac Q1 Earnings Beat on Higher US Sales, Lower Costs

Aflac reported first-quarter 2022 adjusted earnings per share of $1.42, which surpassed the Zacks Consensus Estimate of $1.38. The bottom line, however, declined 7.2% year over year.

AFL’s total revenues of $5,272 million fell 10.2% year over year. Yet, the top line beat the consensus mark by 2.3%.

The better-than-expected first-quarter results were driven by improved returns from alternative investments. The uptick in sales across the Aflac U.S. segment coupled with reduced benefits and expenses also contributed to the upside. Yet, a year-over-year decline in net earned premiums from Japan operations partially offset the positives.

Q1 Performance

Adjusted net investment income declined 3.9% year over year to $879 million for the first quarter.

Total net benefits and claims of $2,487 million slipped 9.1% year over year. Total acquisition and operating expenses of $1,509 million slipped 1.4% year over year. As such, total benefits and expenses declined 6.3% year over year to $3,996 million.

Aflac Japan

Total adjusted revenues of $3,413 million decreased 11.1% year over year in the segment, mainly due to a 12.8% decline in net earned premiums and a 3.5% decrease in adjusted net investment income. Pretax adjusted earnings of the segment decreased 2.8% year over year to $862 million for the quarter under review. New annualized premium sales amounted to $103 million, which declined 14.8% year over year. First-quarter benefit ratio came in at 67.1%.

Aflac U.S.

Total adjusted revenues inched up 0.7% year over year to $1,639 million for the first quarter owing to 4.5% growth in adjusted net investment income, partly offset by a 0.6% decline in net earned premiums. Pretax adjusted earnings of the segment totaled $325 million, which declined 27% year over year as total benefits and adjusted expenses jumped 11.2%. Aflac U.S. sales of $299 million improved 19% year over year for the first quarter. First-quarter benefit ratio came in at 44%.

Financial Position (as of Mar 31, 2022)

Total cash and cash equivalents of $4,275 million decreased from $5,051 million at 2021-end. Total investments and cash of $132.6 billion fell from the 2021-end level of $143 billion. Total assets declined to $147 billion from $157.5 billion at 2021-end.

Adjusted debt amounted to $7,403 million at first quarter-end, down from $7,568 million at 2021-end. Total shareholders' equity decreased to $29.5 billion from $33.3 billion at 2021-end. Adjusted debt to adjusted capitalization was recorded at 23.5%.

While it has no debt maturities in less than one year, $2,532 million of total debt maturities is expected within the next five years.

Adjusted book value per share improved 6.9% year over year to $37.08 for the first quarter. Adjusted return on equity declined 280 basis points to 14.2%.

Capital Deployment

In the first quarter, Aflac bought back 8 million shares worth $500 million. At quarter-end, it had 47.8 million shares left for buyback. It paid $260 million in dividends in the March quarter. The company intends to pay 40 cents per share of dividend in the second quarter, which is flat with the first-quarter level. It has increased dividends for 39 consecutive years.

Outlook

Sales at Japan operations are impacted by the pandemic situation, which affected its ability to meet face-to-face with clients. With an improvement in the current situation, the company expects sales to improve in the second half of 2022. Productivity at Japan Post is expected to improve in the near future.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Aflac has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Aflac has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.