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ling it an overall solid performance, Aflac Chairman and Chief Executive Officer Dan Amos and his executive team on Tuesday reported net income, or a profit, of $751 million in the fourth quarter of 2016 and nearly $2.7 billion for the full year.
The quarterly net earnings translate to $1.84 per diluted share, up from $730 million, or $1.71 per share, a year ago. For the entire year, the earnings equate to $6.42 per diluted share, an increase from $2.5 billion, or $5.85 per share, the year before.
Those numbers were reached on total revenues of $6 billion in the October-December quarter, up 12 percent from $5.3 billion in the same period the year prior. Total revenues for 2016 came in at $22.6 billion, slightly more than 8 percent higher than the $20.9 billion the insurer racked up in 2015.
The company, headquartered on Wynnton Road and a major Columbus employer, also noted that it increased its cash dividend to investors for the 34th year in a row. Moving into 2017, its board of directors have approved a first-quarter cash dividend of 43 cents per share, payable March 1 to those owning stock as of Feb. 15.
The firm also plans to continue gobbling up its own shares in 2017, expecting to repurchase between $1.3 billion and $1.5 billion worth, much of that activity early in the year. That’s on top of the $1.4 billion in shares bought back by the insurer last year, which took 21.6 million shares out of the open market.
“We are pleased with the company’s overall performance for the year,” Amos said in a statement with the earnings release. “Despite the pervasive low-interest rate environment, Aflac Japan, our largest earnings contributor, generated solid financial results.”
The CEO said sales of third-sector products in Japan, which include cancer policies, are showing good long-term growth of 4 percent to 6 percent. He said the firm’s U.S. operations showed “strong profitability” in 2016, although overall sales results were disappointing for Aflac U.S.
“I want to reiterate that we believe the strategy for growth we adopted in both our career and broker channels is the right one as we look ahead,” he said of the U.S. “As we said on last month’s outlook call, we anticipate a long-term compound annual growth rate of 3 percent to 5 percent in new annualized premium sales.”
The company’s strong cash flow from Japan to the U.S. continued as well, with the money being used to buy back stock shares and pay the cash dividend — which has become somewhat of a sacred cow for those investing faithfully in Aflac’s stock. The low-rate environment in Japan makes it less likely that the firm will invest as much money in the Asian market.
“As we have communicated, absent compelling alternatives, we believe that growing the cash dividend and repurchasing our shares are the most attractive means for deploying capital,” Amos said. “Our objective is to grow the dividend at a rate generally in line with the increase in operating earnings per diluted share before the impact of foreign currency translation.”
Aflac held steady with its overall financial guidance for 2017, projecting operating earnings per diluted share of $6.40 to $6.65, a target based on the yen-to-dollar exchange rate remaining strong.
Net earnings include one-time items reported by Aflac, which can be investment gains and losses and other transactions and costs. Operating earnings, on the other hand, subtract those items to give the investment world a sense of the company’s ongoing operations without those one-time financial events.
That said, Aflac’s operating earnings in the fourth quarter were $630 million, down from $668 million the same three-month period of 2015. The company said it took a pretax $52 million “reserve adjustment” — put money aside — for a block of business related to policies it no longer sells. That product is insurance connected to dementia, with some consumers still alive and holding the policies. Thus, the reserve fund to cover future claims.
Touching on the two markets in which it does business, the company said pretax operating earnings in Japan for the fourth quarter were down 4.3 percent to $775 million, although total revenues were up just over 10 percent to $4 billion. For all of 2016, pretax operating earnings came in at $3.3 billion, up 5 percent from the year before. Total revenues rose more than 11 percent to $16.1 billion.
In the U.S., pretax operating earnings were $262 million, up 10.4 percent for the quarter, although the pretax operating profit margin was 17 percent. The firm attributed to high margin to a lower benefit and expense ratio compared to the October-December period a year earlier. For the full year, the U.S. saw pretax operating earnings of $1.2 billion, nearly 10 percent higher. That was on total revenues of $6.2 billion, up 2.2 percent.
Aflac released its earnings report Tuesday after the close of the New York Stock Exchange. That means investors will weigh in on the financial performance in trading on Wednesday. On Tuesday, however, the firm’s shares were down 36 cents, or 0.5 percent, to $69.99 apiece in an overall down market. The 52-week trading range of Aflac stock is $55.24 to $74.50 per share.
