A month has gone by since the last earnings report for Lincoln National (LNC). Shares have lost about 3.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lincoln National due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Lincoln National Q1 Earnings Lag on Higher Benefits Costs
Lincoln National Corporation reported first-quarter 2022 adjusted earnings of $1.66 per share, which missed the Zacks Consensus Estimate of $1.97. Also, the bottom line declined from the prior-year figure of $1.82 per share.
Adjusted operating revenues decreased to $4,718 million for the first quarter from $4,762 million a year ago. Also, the top line missed the consensus mark of $4,768 million.
The weak quarterly results were caused by increased costs and expenses, and lower returns from LNC’s alternative investment portfolios. Muted contributions from Retirement Plan Services, Life Insurance and Group Protection businesses were partially offset by a solid performance of the Annuities unit.
Costs and Expenses
Total expenses of $4,595 million increased from $4,272 million a year ago, primarily due to higher costs related to benefits, Spark, and commissions and other. Benefits constitute 55.8% of total expenses.
The Annuities segment’s operating income increased to $302 million for the first quarter from $290 million a year ago, courtesy of a solid equity market performance that paved the way for increased account values. Operating revenues advanced to $1,232 million from $1,204 million in the year-ago period. Total annuity deposits decreased 3.9% year over year to $2,705 million.
The Retirement Plan Services segment reported an operating income of $55 million, which declined 3.5% year over year. The downside can be attributed to weak returns from Lincoln National’s alternative investment portfolio. The negatives were partially offset by increased account values, attributable to a robust equity market performance. Operating revenues of $318 million decreased 2.8% year over year. Total deposits of $3,367 million rose 27.5% year over year for the quarter under review.
Operating income in the Life Insurance segment amounted to $58 million, down from the prior-year quarter’s $107 million. The decline was caused by lower returns from the alternative investment portfolio and unfavorable underlying mortality. Operating revenues declined 5.9% year over year to $1,825 million. Total Life Insurance sales, however, increased 36% year over year to $155 million for the first quarter, thanks to the rising sales across all key products. Total deposits increased 9.4% year over year to $1,334 million.
The Group Protection segment incurred a loss from operations of $41 million, wider than the prior-year loss of $26 million. Per management, this downside was induced by a non-pandemic-related morbidity and "unusual" claim adjustments. Lower returns from the alternative investment portfolio also affected the unit. Operating revenues of $1,303 million grew 3.9% year over year. Insurance premiums rose 4.5% year over year to $1,169 million. Total sales jumped 42% year over year to $105 million for the quarter under review.
Financial Update (as of Mar 31, 2022)
Lincoln National exited the first quarter with cash and invested cash of $1,960 million, which declined from $2,612 million at 2021 end. Total assets of $365.9 billion also decreased from the 2021-end level of $387.3 billion.
Long-term debt at the first-quarter 2022 end amounted to $6,561 million, up from $6,325 million at the fourth-quarter 2021 end. It had no short-term debt at the first-quarter-end. As of May 4, 2022, its senior debt received ‘A-‘ and ‘BBB+’ ratings from Standard & Poor’s and Fitch, respectively. Shareholders’ equity declined to $14,712 million from $20,272 million at 2021 end.
Book value per share, excluding accumulated other comprehensive income (AOCI), increased 8.2% year over year to $78.32.
Adjusted operating return on equity excluding AOCI came in at 8.6% compared with the year-ago figure of 10.2%.
Cash Returned to Shareholders
Lincoln National bought back shares worth $400 million in the first quarter. Also, it paid out $80 million as common dividends.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
Currently, Lincoln National has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lincoln National has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Lincoln National belongs to the Zacks Insurance - Life Insurance industry. Another stock from the same industry, China Life (LFC), has gained 7.1% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.
China Life reported revenues of $55.22 billion in the last reported quarter, representing a year-over-year change of +361.5%. EPS of $0.43 for the same period compares with $0.08 a year ago.
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