Unum Beats Topline, Lags EPS Est. - Analyst Blog

Unum Group (UNM) reported fourth-quarter operating income of 66 cents per share, 3 cents lower than the Zacks Consensus Estimate. Results were in line with the prior-year period. Operating income was $208.6 million in the quarter, down 4% from $218.3 million in fourth-quarter 2009.

Soft performance at Unum UK and Colonial Life contributed to the lower-than-expected results.

Including realized after-tax investment gains of $17.2 million or 5 cents per share, the company reported net income of $225.8 million or 71 cents per share, compared with $199.4 million or 60 cents per share in the fourth quarter of 2009. The prior-year quarter's registered net realized after-tax losses were $18.9 million or 6 cents per share.

For full year 2010, Unum reported operating income of $2.69 per share, lagging the Zacks Consensus estimate of $2.72. Results compare favorably with $2.57 in 2009. Operating income was $880.6 million in 2010, down 4% from $218.3 million in fourth-quarter 2009.

Including net realized gain of 5 cents and special tax items and debt extinguishment costs of 3 cents, the company reported net income of $2.71 per share for full year 2010, up 5% from $2.57 per share in 2009. Net income was $886.1 million, higher than $852.6 million in 2009.

Total revenue in the quarter under review was $2.59 billion, up 4% from $2.49 billion in the fourth quarter of 2009. Results exceeded the Zacks Consensus estimate of $2.54 billion.

Full year 2010 total revenue increased 1% year over year to gross $10.19 billion. Revenue for the year surpassed the Zacks Consensus estimate of $10.11 billion.

Segment Update

Unum US Segment: Segment premium in the quarter was $1,211.4 million, up 0.3% year over year.

Operating income increased 1.5% year over year to $206.1 million in the fourth quarter of 2010.

Unum UK Segment: Premium declined 5.3% year over year to $170.5 million in the fourth quarter of 2010. In local currency, premium decreased 2.1% year over year to £107.9 million.

Segment operating income was $48.1 million in the fourth quarter of 2010, down 21.5% year over year.

The benefit ratio was 71.7% in fourth-quarter 2010, up from 59.6% in the prior-year quarter. The higher benefit ratio resulted from less favorable claim experience and effect of higher inflation on claim reserves.

Colonial Life Segment: Premium in the quarter increased 6.3% year over year to $273.6 million.

Operating income declined 11.0% year over year to $60.8 million in the reported quarter.

The benefit ratio was 53.4% compared with 48.5% in the year-ago period. The increase was a result of a higher benefit ratio in the accident, sickness and disability line.

Individual Disability – Closed Block Segment: Premium decreased 3.4% year over year to $212 million in fourth-quarter 2010.

Segment operating income showed a whopping 77% increase in the quarter. It increased to $10.3 million from $5.8 million largely driven by lower expenses.

Corporate and Other Segment: Operating loss of $17.3 million in the reported quarter widened from a loss of $16.6 million a year ago.

Financial Update

Unum Group ended 2010 with a debt of $2.14 billion, up 21% from $1.76 billion from 2009 end.

The debt-to-capital ratio was 22.8%, up 230 basis points from 20.5% in the prior-year.

Book value as of December 31, 2010, was $28.25 per share, up 10.3% from $25.62 as of December 31, 2010.

Share Repurchase

Unum Group spent $28.5 million to buy back 1.2 million shares during the fourth quarter 2010.

The board of directors of Unum Group authorized the company to buy back up to $1 billion of common stock over the next 18 months. This amount is in addition to the remaining balance of $144.3 million on its previous share repurchase authorization.

Full-Year 2011 Guidance

Unum Group expects operating income per share to grow in the range of 6% to 12%.

Peer Comparison

AFLAC Inc. (AFL), which competes with Unum Group, reported fourth quarter operating earnings per share of $1.33, lower than the Zacks Consensus Estimate of $1.35 although results were higher than $1.18 reported in the year-ago quarter.

Earnings for the reported quarter benefited from top line growth and a stronger yen/dollar exchange rate that helped increase operating earnings per share by 6 cents. For full year 2010, Aflac reported operating earnings of $2.6 billion or $5.53 per share as compared with $2.3 billion or $4.85 per share in 2009. However, this was lower than the Zacks Consensus Estimate of $5.56 per share.

Lincoln National Corp. (LNC), another competitor of Unum, reported fourth quarter operating earnings per share of 82 cents, way behind the Zacks Consensus Estimate of 88 cents and 90 cents recorded in the prior-year quarter.

Results were primarily impacted by a charge of $41 million or 13 cents per share arising from litigation and settlement expenses. For full year 2010, operating earnings per share of $3.13 came in way behind the Zacks Consensus Estimate of $3.23 and $3.18 cents recorded in 2009, due to increased share count in the reported year.

Our Take

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 #3 Rank (short-term Neutral rating) for the company indicates no clear directional pressure on the shares over the near term.

 
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