Aflac Reports $810 Million Quarterly Profit

July 30--Reporting a second-quarter profit of $810 million Tuesday, down 8.8 percent from a year ago, Aflac said it plans to apply intense pressure on its U.S. operation to sell more insurance policies.

Specifically, the company is making a dramatic change in its sales hierarchy, switching from the longtime use of "state sales coordinators" -- independent contractors paid strictly on commission -- to Aflac-employed "market directors" who will receive salaries with possible sales-related bonuses.

"From a financial perspective, Aflac U.S. continued to perform well in the second quarter," Aflac Chairman and Chief Executive Officer Dan Amos said in a statement. "However, our sales results remain disappointing. Given sales production in the first half of the year, we now expect sales for the full year will likely be down 4 percent to down 8 percent."

Aflac, headquartered on Wynnton Road in Columbus, said it is eliminating the 76 state sales coordinator positions it has used for years and creating 66 market director positions. All of the former state sales coordinators will be eligible to apply for the new jobs, it said.

The changes, which take effect Oct. 1, include "enhancing" the compensation of district sales coordinators who train front-level sales associates and are the primary drivers of sales across the United States. The district management will receive an "incentive bonus" if they are successful, the company said.

"In order to drive future sales growth, we believe it is crucial to ensure all levels of our sales hierarchy have the potential to earn the best compensation in the industry," Amos said. "At the same time, we must more effectively and consistently execute on the U.S. sales strategy across all states."

Aflac said the effort to restructure the U.S. sales force will cost the firm about 2 cents per diluted share starting in the October-December quarter of this year. The 2015 expense estimate related to the revamping will be disclosed in October.

For Amos, this is one of the more dramatic moves he has made in the U.S. operations since becoming CEO in 1990 and chairman in 2001. He joined Aflac in 1973, working in sales for a decade. He also was responsible for launching the wildly successful Aflac duck advertising campaign in 2000, a move that has made the firm a household name.

The sales move comes with the U.S. operation reporting revenue of $1.5 billion in the quarter, up 1.3 percent. Pretax operating earnings were $300 million, up nearly 6 percent. But new annualized premium sales dropped 8.2 percent to $334 million.

Those numbers come with the company facing additional pressure in Japan, where Aflac derives about 80 percent of its total business. The operation there has been evolving from a bank-oriented sales model to one fueled by Japan Post, the Asian nation's postal service.

The company is working to get its supplemental health and life insurance policies sold in 20,000 of the Japan Post outlets, as well as through Japan Post Insurance offices, known as "Kampo."

On Tuesday, Aflac reported revenue for the quarter in Japan was down 2.7 percent to $4.3 billion, premium income dipped nearly 4 percent to $3.6 billion, and net investment income rose 4 percent to $480 million. It said results were once again impacted by the weaker yen-to-dollar exchange rate.

Amos said with sales from "traditional agencies slowing down" and with the sales comparison in the second half of this year going up against the rollout of a new product in August a year ago, the next six months will be challenging for the firm's financial books.

"Taking these factors into account, we now anticipate third sector sales for the full year will trend toward the low end of our expectation of a 2 percent to 7 percent increase," he said.

Thus, he said, the need for making the moves necessary to rev up U.S. sales to "drive future sales growth," the CEO said.

Companywide during the quarter, total revenue was $5.8 billion, down 3.4 percent from $6 billion during the April-June period a year ago. Net earnings, or profit, was $810 million, down 8.8 percent from $889 million a year ago.

As is typical, Aflac records several one-time items on its financial sheets, including investment gains and losses, securities transactions and impairments, and hedge-related costs.

Taking out those one-time items, Aflac reported operating earnings of $757 million, or $1.66 per diluted share, in the quarter, just slightly lower than the $759 million, or $1.62 per share, a year ago.

That beat the operating earnings consensus of $1.59 per share that Wall Street analysts who cover the company were expecting for the quarter.

The company also remains a cash machine, reporting total investments and cash of $114.7 billion at the end of June, up from $110.5 billion at the end of March. About $100 million of that extra money was used to buy back 1.6 million shares of common stock during the quarter.

Aflac also said its shareholders will be rewarded with a third-quarter cash dividend of 37 cents per share. It is payable Sept. 2 to those owning the firm's stock as of Aug. 20.

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