Unum Group (UNM) reported first-quarter
operating income of 73 cents per share, missing the Zacks Consensus
Estimate by 3 cents. Results compare favorably with 70 cents earned
in the prior-year period. Operating income was $213.2 million in
the quarter, down 2.7% from $219.1 million in first-quarter
2011.
The company experienced soft results at Unum UK and the Closed
Block. However, solid performances at Unum US and Colonial Life
compensated for the weak performances and led to the year-over-year
improvement. Share repurchases also aided the bottom line.
The quarter had net realized investment gain of $8.3 million,
offset by non-operating retirement-related loss of $7.6 million,
thereby having no material impact on the bottom line.
Total revenue in the quarter was $2.61 billion, up 1.9% year
over year. The top line surpassed the Zacks Consensus Estimate of
$2.59 billion.
Segment Update
Unum US Segment: Segment premium in
the quarter was $1.112 billion, up 4% year over year.
Operating income increased 5.8% year over year to $205.9 million
in the quarter.
Unum UK Segment: Premium increased
2.2% year over year to $170.7 million in the fourth quarter of
2011. In local currency, premium increased 4.2% year over year to
£108.6 million.
Segment operating income was $38.8 million in the quarter, down
20.7% year over year.
The benefit ratio was 72.4% in first-quarter 2012, up from 69.3%
in the prior-year quarter. The higher benefit ratio resulted from
unfavorable risk experience in the group life line of business.
Colonial Life Segment: Premium in the
quarter increased 5.7% year over year to $296.3 million.
Operating income increased 4% year over year to $69.7 million in
the reported quarter.
The benefit ratio was 52.1% compared with 51.4% in the year-ago
period. The increase was a result of higher risk experience in the
accident, sickness and disability line.
Closed Block Segment: The segment now
includes the results of the closed blocks of individual disability,
long-term care and other closed blocks, previously reported in the
Corporate and Other segment.
Premium income for the individual disability – closed block line
of business decreased 7.5% year over year while premium income for
the long-term care line of business increased 3.1% year over
year.
The segment reported an operating income of $15.4 million, down
51.7% year over year. The decline was attributable to lower income
from the long-term care line of business, partially offset by
higher income from the individual disability – closed block line of
business.
Corporate and Other Segment: Operating
loss of $20.6 million in the reported quarter was narrower than the
loss of $21.8 million incurred a year ago.
Financial Update
Unum Group ended the quarter with a debt of $1.94 billion, flat
with the end level of 2011.
The debt-to-capital ratio was 23.4%, up 100 basis points from
22.4% as of December 31, 2011.
Book value as of December 31, 2011, was $28.62 per share, up
3.8% from $27.58 as of December 31, 2010.
Dividends
The Board of Directors approved a 23.8% hike in the quarterly
dividend. The increased dividend of 13 cents will be paid in the
third quarter of 2012.
Share Repurchase
Unum Group spent $175.2 million to buy back 7.5 million shares
in the quarter. As of March 31, 2012, the company is left with
$349.7 million remaining under its $1.0 billion share repurchase
authorization.
Business Restructuring
Following the strategic review of the long-term care business,
Unum Group discontinued new sales of group long-term care contracts
during the first quarter of 2012 and reclassified the long-term
care line of business to the Closed Block segment from the Unum US
unit.
Looking at 2012
Unum Group expects operating income per share to grow in the
lower range of 6% to 12%.
Peer Comparison
AFLAC Inc's (AFL), which competes with Unum,
reported first-quarter 2012 operating earnings per share of $1.74
outpacing both the Zacks Consensus Estimate of $1.65 and the
year-ago quarter’s earnings of $1.62.
A stronger yen/dollar exchange rate and higher investment income
related to portfolio de-risking boosted the operating earnings per
share by 4 cents and 5 cents, respectively.
Total revenue for the reported quarter spiked up 21.9% year over
year to $6.24 billion, slivering past the Zacks Consensus Estimate
of $6.2 billion. Despite the ongoing derisking activities, total
revenue benefited from the strengthening of yen against the dollar
along with consistent improvement in the U.S. and
better-than-expected performance in Japan.
Lincoln National Corp. (LNC), competing with
Unum, is scheduled to release its first quarter results today after
the bell while yet another peer Cigna Corp. (CI)
is scheduled to release its first quarter results on May 3 before
the bell.
Zacks Rank
We maintain our long-term Neutral recommendation on Unum Group.
The quantitative Zacks #4 Rank (short-term Sell rating) for the
company indicates slight downward pressure on the shares over the
near term.
AFLAC INC (AFL): Free Stock Analysis Report
CIGNA CORP (CI): Free Stock Analysis Report
LINCOLN NATL-IN (LNC): Free Stock Analysis Report
UNUM GROUP (UNM): Free Stock Analysis Report
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