Zacks_Analysts' Blog : Lincoln In Line with Zacks Estimate - Analyst Blog

Lincoln National Corporation’s (LNC) fourth quarter operating earnings of $1.00 per share came in line with the Zacks Consensus Estimate but higher than 82 cents per share recorded in the prior-year quarter. Meanwhile, operating net income surged 14.0% year over year to $302.6 million.

Conversely, net loss available to common shareholders rose to $514.3 million or $1.73 per share against a net income of $195.6 million or 60 cents per share in the year-ago quarter. GAAP net loss came in at $51.37 million, down from $195.6 million in the year-ago period.

Results were primarily impacted by non-cash goodwill impairment charge of $747 million or $2.51per share, related to life insurance and media businesses. Moreover, realized loss of $94.4 million was partially offset by benefit ratio unlocking of $23.7 million and income from reserve changes of $0.5 million.

Lincoln’s total revenue slipped down 3.4% to $2.57 billion from $2.66 billion in the prior-year quarter. This also lagged the Zacks Consensus Estimate of $2.75 billion. Meanwhile, consolidated deposits of $5.5 billion were flat from the prior quarter. Total account balances increased to $160 billion from $153 billion in the prior quarter, primarily driven by positive net flows and equity market appreciation. Total net flows were escalated 21% year over year at $1.6 billion.

Segment-analysis is as follows:

Operating income from Individual Annuities was $134 million compared with $123 million in the prior-year quarter. Total annuity deposits were $2.4 billion (down 8% year over year), reflecting a drop in demand for fixed annuities and lower interest rates. Even net annuity flows declined 37% year over year to $345 million.

Operating income from Retirement Plan Services was $35 million, marginally up from $33 million in the prior-year period. Gross deposits of $1.6 billion were up 16% versus the prior-year period spurred by strong first-year and renewal deposits in the mid-to-large case market as investments in technology and distribution gained traction. Consequently, total net inflows were $219 million versus net outflows of $304 million in the year-ago quarter.

Operating income from Life Insurance of $154 million dipped modestly from $166 million recorded in the year-ago period given the lower-than-expected net investment income related to alternative investment and prepayment income. The life insurance segment's results included net positive items of $4 million mainly associated with the favorable deferred acquisition cost (DAC) adjustments against $10 million in the year-ago quarter.

Life insurance sales were $229 million, up 11% year over year. Life insurance in force grew 3% year over year to $580 billion while account values of $35 billion increased 5% over the prior-year quarter, reflecting improvement from product pricing initiatives taken against low interest rate environment.

Operating income from Group Protection increased to $28 million from $18 million in the prior-year period. Non-medical loss ratio improved to 72.2% from 75.5% in the year-ago quarter. Net earned premiums were $412 million, up 5% over the year-ago period, while Group Protection sales of $207 million surged 33% year over year. Annualized sales also escalated 12% year over year to $395 million. Results reflected price increases and additional resources to claims management.

Operating loss in Other operations modestly reduced to $42 million from $74 million in the year-ago quarter. The reported quarter included $7 million of net negative items that primarily resulted from guaranty association assessments, while the year-ago quarter included $41 million of negative items related to legal expenses.

Besides, net realized losses included impairments totalling $37 million compared to a loss of $61 million in the prior-year quarter. Additionally, net realized losses included a variable annuity net derivatives loss of $42 million and a negative non-performance risk factor adjustment due to narrowing credit default spreads of $47 million, during the reported quarter.

As of December 31, 2011, net unrealized gain was approximately $6.5 billion (pre tax) on its available-for-sale securities as compared with $2.9 billion at the end of 2010.

Full-Year 2011 Highlights

For full year 2011, Lincoln reported operating earnings of $  1.31 billion or $4.17 per share as compared with $1.04 billion or $3.13 per share in 2010. This, however, came in a penny lower than the Zacks Consensus Estimate of $4.18 per share.

However, net income available to common shareholders plunged to $289.7 million or 92 cents per share from $811.7 million or $2.54 per share in 2010. GAAP net income also plummeted to $293.8 million from $980.3 million in 2010.

Results were primarily impacted by non-cash goodwill impairment charge of $747 million or $2.51per share, related to life insurance and media businesses. Other charges included realized loss of $252.1 million, benefit ratio unlocking of $13.5 million, loss from extinguishment of debt of $5.5 million and loss from discontinued operations of $8.4 million. These charges were partially offset by income from reserve changes of $1.8 million.

Meanwhile, Lincoln’s total revenue inched up 2.2% to $10.64 billion in 2011, although it was lower than the Zacks Consensus Estimate of $11.07 billion. While consolidated deposits stood at $21.6 billion, variable annuity deposits climbed 6% year over year to $8.7 billion and life insurance sales escalated 10% to $0.7 billion. Besides, retirement plan services generated net flows of 0.5 billion against outflows of $0.3 billion in 2010.

Financial Update

During the reported quarter, Lincoln redeemed its 6.20% Senior Notes worth $250 million, which matured on December 15, 2011.

At the end of 2011, book value per share came in at $48.59, up 19.9% over 2010. Excluding accumulated other comprehensive income (AOCI), book value increased 5.3% year over year to $40.19 per share. The quarterly operating ROE, excluding AOCI and goodwill, was 14.1%, up from 11.7% at the end of 2010.

Additionally, Lincoln bought back 10.4 million shares for a cost of $200 million during the reported quarter, while a total buy back worth $575 million was completed in 2011.

Dividend Update

On November 10, 2011, the board of Lincoln announced a significant 60% increase in its quarterly dividend to 8 cents per share from the previous payout of 5 cents per share. The hiked dividend was paid on February 1, 2012 to shareholders of record as on January 10, 2012. This marks the second dividend hike since 2007.

Peer Take

Last week, one of the peers, Genworth Financial Inc. (GNW) reported its fourth quarter operating income of 17 cents per share, in line with the Zacks Consensus Estimate. Results, however, breezed past the year-ago loss of 28 cents per share. Operating profit for the quarter stood at $86 million, reversing the loss of $135 million, a year ago. Another peer – Manulife Financial Corp. (MFC) is slated to report its financial results after the closing bell on February 9, 2012.