Supplemental insurance provider Aflac (AFL) is overcoming adversity — two adversities, actually: Exposure to risky investments and the earthquake in Japan whacked the company's business earlier this year.
Total revenues rose 2.2 percent to $5.1 billion in the second quarter of 2011, compared to $5 billion in the second quarter of 2010. Net earnings, however, dropped to $280 million, down 52 percent from the $581 million earned during the same quarter a year ago.
The drop in profits was mainly due to a $453 million after-tax hit that came from writing off risky investments, especially those tied to Europe.
Company officials say they are pleased with their results, even in Japan, where a stronger yen boosted revenue. "Aflac Japan overcame challenges resulting from the most destructive and devastating natural disaster in Japan’s history to achieve strong sales growth," says company Chairman and CEO Daniel P. Amos.
"We were also encouraged that Aflac U.S. continued to generate positive sales results, despite the lingering weakness in the U.S. economy. Aflac U.S. has continued to generate significant recruiting gains, which we believe benefited from targeted advertising activities designed to promote the Aflac sales opportunity. As a result of our positive performance in both Japan and the U.S., we posted strong consolidated financial results," Amos adds.
Ratings agency analysts say they like Aflac despite lingering concerns about the company's exposure to Japan's quake-ridden economy.
"We expect that Aflac will maintain its very strong competitive position, enabling it to continue generating very strong earnings and cash flow," Standard and Poor's analysts write in a recent report on the company.
Aflac's shares have gone through some peaks and valleys, with current stock prices not far from the bottom of a 52-week trading range, which would put them about 42 percent below the peak price during that time frame. The company, meanwhile, is upping earnings forecasts.
"Looking ahead, we expect 2012 operating earnings per diluted share to increase 2 percent to 5 percent on a currency neutral basis. This upward revision to our 2012 earnings objective assumes no additional significant investment losses and no further meaningful decline in interest rates," Amos says.
Wall Street is taking note. In January, FBR Capital upgraded the company's stock to outperform from market perform. In April, Barclays initiated coverage of the stock at overweight. Aflac is scheduled to report again on Oct. 26.
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