10-QPeriod: Q1 FY2017

AFLAC INC Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 3, 2017For Securities:AFL

Summary

Aflac Incorporated reported net earnings of $592 million for the first quarter of 2017, a decrease from $731 million in the same period of 2016. This decline was primarily driven by a significant shift in realized investment gains/losses, moving from a net gain of $30 million in Q1 2016 to a net loss of $140 million in Q1 2017. This was influenced by substantial net losses from derivatives and foreign currency activities. Despite the decrease in net earnings, Aflac's core insurance operations showed resilience. Net premiums, primarily from supplemental health insurance, saw a slight increase to $4.638 billion from $4.602 billion. The company's Japan segment, Aflac Japan, continues to be the primary revenue generator, contributing $3.194 billion in net earned premiums, while Aflac U.S. contributed $1.390 billion. The company repurchased approximately $600 million of its common stock in the first quarter of 2017, demonstrating a commitment to returning capital to shareholders. Management remains focused on its core business and navigating the current low-interest-rate environment, particularly in Japan.

Financial Highlights

33 data points
Beta

Revenue

$5.31B

Net Income

$592.00M

11.2% Net Margin

EPS (Diluted)

$0.73

Total Assets

$133.65B

Cash & Equivalents

$4.21B

Free Cash Flow

$1.76B

Financial Statements
Beta
Revenue$5.31B
SG&A Expenses$675.00M
Operating Income$1.03B
Interest Expense$62.00M
Net Income$592.00M
EPS (Basic)$0.74
EPS (Diluted)$0.73
Shares Outstanding (Basic)802.26M
Shares Outstanding (Diluted)808.14M

Key Highlights

  • 1Net earnings decreased to $592 million from $731 million year-over-year, largely due to unfavorable investment gains/losses.
  • 2Realized investment gains/losses swung from a $30 million gain in Q1 2016 to a $140 million loss in Q1 2017, driven by derivative and foreign currency activities.
  • 3Net premiums remained stable, increasing slightly to $4.638 billion from $4.602 billion.
  • 4Aflac Japan remains the dominant segment, with net earned premiums of $3.194 billion, while Aflac U.S. generated $1.390 billion.
  • 5The company repurchased $600 million of its common stock in Q1 2017, indicating continued capital return to shareholders.
  • 6Diluted earnings per share decreased to $1.47 from $1.74 year-over-year.

Frequently Asked Questions

The primary reason for the decrease in net earnings from $731 million in Q1 2016 to $592 million in Q1 2017 is the significant negative swing in realized investment gains and losses. This moved from a net gain of $30 million in the prior year to a net loss of $140 million in the current quarter, primarily driven by derivative and foreign currency activities.

Aflac Japan continues to be the largest segment, contributing significantly to Aflac's overall revenue. For the first quarter of 2017, Aflac Japan reported net earned premiums of $3.194 billion. While pretax operating earnings for Aflac Japan decreased slightly to $769 million from $806 million in the prior year, it remains the company's primary earnings engine. Sales efforts are increasingly focused on less interest-rate sensitive 'third sector' products like cancer and medical insurance.

Aflac actively repurchased its common stock in the first quarter of 2017, buying back approximately 8.5 million shares for $600 million. This demonstrates the company's commitment to returning capital to shareholders. As of March 31, 2017, there was still a significant amount of repurchase authorization available.

Aflac generates a substantial portion of its revenue and holds significant assets in Japan. Fluctuations in the JPY/USD exchange rate can materially impact reported U.S. dollar results. In Q1 2017, the yen strengthened against the dollar compared to the prior year's average rate, which generally translates to more yen-denominated items being reported as fewer dollars, potentially suppressing reported growth rates when translated into USD. Management monitors and sometimes hedges these currency exposures.