AFLAC's Solid Results Lost In Translation

AFLAC reported another solid quarter this week, but foreign exchange pressures left investors unimpressed.

Feb 6, 2014 at 6:00PM

Source: ALF Q$13 press release

Operating an international financial firm can be difficult, especially when your results are mired by exchange rate impacts. This is precisely what insurer AFLAC (NYSE:AFL) is experiencing this week, following the release of its fourth-quarter and full year 2013 earnings report. But investors should be sure that they're comparing apples to apples before shaking a feather at the insurer.

On the surface
At first glance, AFLAC's fourth-quarter results were nothing to celebrate. Revenue was down nine percent year over year and earnings only benefited from lower expenses, claims, and benefits payouts. With its US operations contributing a small boost to revenues and net investment income, there was a huge drag on AFLAC's earnings that investors couldn't ignore -- but maybe they should have.

Exchange Rates
A significant portion of AFLAC's business is in Japan, where the company transacts its business in the Yen. With a weakening Yen, the insurer has found that the exchange rates have skewed its quarterly results, making its financial picture look much bleaker than reality. For example, here are some select data points from AFLAC's Japanese operations, comparing the fourth-quarter 2013 results versus the prior year, with and without the effect of exchange rates:

MetricIncluding Exchange EffectExcluding Exchange Effect
Premium Income (13%)


Net Investment Income (5.7%) 4.4%
Benefits and Expenses (13.1%) 2%

Operating Earnings

(6.8%) 5.4%
Operating Earnings per dilutes share (5.4%) 6.8%

Source: AFL Q413 Earnings press release

It's clear from the table above that by comparing operations without the effect of exchange rates, investors can get a clearer picture of how AFLAC's operations continue to grow.

Excluding the impact of the weakened yen, AFLAC's CEO, Daniel Amos, highlighted the fact that the company continues to meet its goals, with total operating income per diluted share improving by over 5%, which was the insurer's goal and expectation.


Source: Flickr, Martin Deutsch

Not all bad
There was one area that benefited significantly from the weakened yen -- AFLAC's Japanese investment portfolio. Because of the low interest rate environment in Japan, the company had designated a larger portion of its portfolio to dollar-denominated investments. With 45% of its investments (up from 38% in 2012) allocated to these types, the Japanese segment reported a 15.7% increase in net investment income for the fourth quarter.

Apples and oranges
During the earnings season, investors need to be careful not to skim the financial reports without understanding the context of what they're reading. In the case of AFLAC, the company may have experienced a slight drop initially following the report's release, but investors soon found that the impact of the yen exchange rate was not that concerning after all. For more coverage on AFLAC and the insurance industry's earnings season, keep checking out

A new year
With the arrival of earnings season comes the realization that another year has come and gone. After you're finished perusing your favorite company's earnings report, it may be time to think ahead for the current year's opportunities. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends Aflac. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers