Unum Group Reports In Line - Analyst Blog

Unum Group (UNM) reported third-quarter operating income of 68 cents per share, in line with the Zacks Consensus Estimate. Results compare favorably with an operating income of 64 cents per share in the prior-year period. Operating income was $219.9 million in the quarter, up 3.9% from $211.6 million in third-quarter 2009.

Strong performance at Unum US and Colonial Life as well as Individual Disability–Closed Block primarily drove the year-over-year improvement. However, weak results at Unum UK were a partial offset.

Including realized after-tax investment gains of $0.9 million, the company reported net income of $220.8 million or 68 cents per share, compared with $221.1 million or 66 cents per share in the third quarter of 2009. The prior-year quarter's registered net realized after-tax gains were $9.5 million or 2 cents per share.

Total revenue in the quarter under review was $2.53 billion, a trifle lower from $2.52 billion in the third quarter of 2009. Results were slightly down from the Zacks Consensus Estimate of $2.54 billion.

Segment Update

Unum US Segment: Segment premium in the quarter was $1,210.6 million, down 0.4% year over year.

Operating income increased 3.9% year over year to $204.7 million in the third quarter of 2010.

Unum UK Segment: Premium declined 4.9% year over year to $161.4 million in the third quarter of 2010. In local currency, premium increased 0.7% year over year to £104.1 million.

Segment operating income was $47.2 million in the third quarter of 2010, down 19.6% year over year.

The benefit ratio was 66.9% in third-quarter 2010, up from 50.2% in the prior-year quarter. The higher benefit ratio resulted from a lower rate of claim resolutions in the group disability product line, partially offset by slightly favorable risk results for the group life line.

Colonial Life Segment: Premium in the quarter increased 6.2% year over year to $269.3 million.

Operating income improved 5.8% year over year to $74.5 million in the reported quarter.

The benefit ratio was 49.9% compared with 48.2% in the year-ago period. The increase was a result of a higher benefit ratio in the accident, sickness and disability line, partially offset by lower benefit ratios in both the cancer and critical illness lines of business and the life line business.

Individual Disability – Closed Block Segment: Premium decreased 5.9% year over year to $208.5 million in third-quarter 2010.

Segment operating income was $9.8 million, up 36% year over year largely driven by lower expenses.

Corporate and Other Segment: Operating loss of $10.8 million in the reported quarter narrowed from a loss of $13.7 million a year ago. The lower loss resulted from higher net investment income and lower operating expense, partially offset by increased interest expense.

Financial Update

Unum Group ended the quarter with a debt of $2.2 billion, up 22% from $1.8 billion at third-quarter 2009 end.

The debt-to-capital ratio was 23.3%, up 220 basis points from 21.1% in the prior-year quarter.

Book value as of September 30, 2010, was $28.08 per share, up 13% from $24.86 as of September 30, 2009.

Dividend and Share Repurchase

Unum Group spent $197.7 million to buy back 9.5 million shares in the third quarter of 2010. At quarter-end, the company had $173 million remaining under its share repurchase authorization.

In the quarter, Unum Group paid a dividend of 9 cents to stockholders of record on July 30, 2010.

Full-Year 2010 Guidance

Unum Group expects operating income growth to be at the lower end of its previously stated outlook of a range of 4% to 6%. However, including share repurchases, the company expects operating income per share growth to be at the higher end of the range.

We expect solid performance across segments, strong capital position, aggressive share repurchases and continuous dividend payments to position the company for strong results going forward.

However, the current high levels of unemployment and sluggish economic recovery will delay new business, exerting pressure on premium growth. Also, low interest rates are expected to exert downward pressure on investment income.

We maintain our long-term Neutral recommendation on Unum Group. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the shares over the near term.

 
UNUM GROUP (UNM): Free Stock Analysis Report
 
Zacks Investment Research