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Last Update: 25-Apr-13 07:53 ET
Aflac shares little changed following beat on earnings and downside guidance
Aflac (AFL $51.56 +0.00) reported first quarter earnings of $1.69 per share, $0.07 better than the Capital IQ consensus of $1.62, while revenues fell 0.5% year/year to $6.21 billion versus the $6.12 billion consensus. The com pay issues downside guidance for Q2, sees EPS of $1.41-1.56 versus the $1.57 Capital IQ consensus. The company issued in-line guidance for fiscal year 2013 with EPS of $5.99-6.37 versus the $6.28 Capital IQ consensus. For the first quarter, Aflac Japan's results in dollar terms were suppressed by the weaker yen/dollar exchange rate. The average yen/dollar exchange rate in the first quarter of 2013 was 92.59, or 14.0% weaker than the average rate of 79.59 in the first quarter of 2012. While Aflac U.S. sales declined in the quarter, we believe sales will be weighted more toward the latter half of the year. Therefore, we are retaining our objective of a flat to 5% sales increase for the year. Low investment yields, particularly in Japan, remain a significant challenge. As such, we continue to invest a significant portion of our cash flows in U.S. corporate bonds.
This strategy provides greater liquidity, enhances flexibility for our portfolio and increases the opportunity to diversify the investment of our significant cash flows beyond Japanese Government Bonds, with the objective of producing higher returns. In light of 10-year JGB yields hitting historical lows, we want to be flexible in our asset allocation. Given significant changes impacting financial markets including Japanese interest rates and the yen/dollar exchange rate, our investment team is carefully monitoring Japan's monetary and fiscal policies to evaluate investment options related to our JGB asset allocation. We estimate our quarterly RBC ratio at March 31 was above our 2012 year-end ratio of 630%. We believe Aflac Japan's SMR will also improve over its year-end 2012 level of 669%. I want to reiterate that our objective for 2013 has not changed: To increase operating earnings per diluted share 4% to 7%, or approximately $6.86 to $7.06 per share, on a currency neutral basis. Assuming we achieve our earnings objective and the yen averages 95 to 100 to the dollar for 2013, we would expect to report operating earnings of $5.99 to $6.37 per diluted share for the full year. Additionally, for the second quarter of 2013, using the same currency assumptions, we expect operating earnings will be in the range of $1.41 to $1.56 per diluted share."
This strategy provides greater liquidity, enhances flexibility for our portfolio and increases the opportunity to diversify the investment of our significant cash flows beyond Japanese Government Bonds, with the objective of producing higher returns. In light of 10-year JGB yields hitting historical lows, we want to be flexible in our asset allocation. Given significant changes impacting financial markets including Japanese interest rates and the yen/dollar exchange rate, our investment team is carefully monitoring Japan's monetary and fiscal policies to evaluate investment options related to our JGB asset allocation. We estimate our quarterly RBC ratio at March 31 was above our 2012 year-end ratio of 630%. We believe Aflac Japan's SMR will also improve over its year-end 2012 level of 669%. I want to reiterate that our objective for 2013 has not changed: To increase operating earnings per diluted share 4% to 7%, or approximately $6.86 to $7.06 per share, on a currency neutral basis. Assuming we achieve our earnings objective and the yen averages 95 to 100 to the dollar for 2013, we would expect to report operating earnings of $5.99 to $6.37 per diluted share for the full year. Additionally, for the second quarter of 2013, using the same currency assumptions, we expect operating earnings will be in the range of $1.41 to $1.56 per diluted share."
