It has been about a month since the last earnings report for Lincoln National (LNC). Shares have added about 18.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lincoln National due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lincoln National Q1 Earnings Beat on Group Protection Unit
Lincoln National reported first-quarter 2023 adjusted earnings of $1.52 per share, which outpaced the Zacks Consensus Estimate by 2%. However, the bottom line slipped 1.9% year over year.
Adjusted operating revenues fell 1.3% year over year to $4,657 million. Yet, the top beat the consensus mark by a whisker.
The quarterly results benefited on the back of new business growth and the solid contribution from the Group Protection segment. However, the upside was partly offset by an elevated expense level resulting from the adoption of adverse Accounting Standards Update 2018-12 that gave rise to a new accounting for market risk benefits (“MRBs”).
Costs and Expenses
Total expenses escalated 72.8% year over year to $4,984 million in the quarter under review due to the incidence of a significant MRB loss. Benefits account for 46% of the quarter’s overall costs.
The Annuities segment recorded an operating income of $274 million, which decreased 14% year over year and came higher than the Zacks Consensus Estimate of $271 million. The metric suffered from reduced fee income resulting from unfavorable capital markets. Operating revenues of $1,141 million dipped 0.5% year over year and lagged the consensus mark of $1,175 million. Total annuity deposits advanced 17% year over year to $3,164 million in the quarter under review on the back of higher sales in fixed and indexed variable annuities.
Operating income in the Retirement Plan Services segment came in at $43 million, which plunged 26% year over year due to a decline in prepayment income and an elevated expense level. The reported figure missed the Zacks Consensus Estimate of $52 million. Operating revenues of $328 million grew 3.1% year over year in the first quarter and outpaced the consensus mark of $323 million. Total deposits tumbled 11.8% year over year to $3,209 million.
The Life Insurance segment incurred an operating loss of $13 million in the quarter under review against the prior-year quarter’s operating income of $23 million. The decline was due to run-rate impact stemming from the third-quarter 2022 annual review of deferred acquisition costs (DAC) and reserve assumptions of Lincoln National coupled with reduced alternative investment income and prepayment income. Operating revenues of $1,757 million inched up 1.6% year over year and beat the Zacks Consensus Estimate of $1,721 million. Total Life Insurance sales dropped 16.1% year over year to $130 million due to a decline in Variable Universal Life, Executive Benefits and Term product sales. Total deposits of $1,320 million fell 2.3% year over year in the first quarter.
The Group Protection segment recorded an operating income of $71 million in the quarter under review against the prior-year quarter’s loss of $46 million. This significant improvement can be attributed to better disability underwriting results and declining COVID mortality claims. The reported figure outpaced the Zacks Consensus Estimate of $42.2 million.
Operating revenues increased 6.5% year over year to $1,388 million, higher than the Zacks Consensus Estimate of $1,358 million. Insurance premiums of $1,251 million rose 7% year over year. Sales amounted to $128 million in the segment, which climbed 22% year over year.
Other Operations incurred an operating loss of $87 million in the first quarter, wider than the prior quarter’s loss of $78 million.
Financial Update (as of Mar 31, 2023)
Lincoln National exited the first quarter with cash and invested cash of $3,766 million, which surged 92.1% year over year. Total assets of $343.1 billion slipped 7.3% year over year.
Long-term debt amounted to $5,974 million, which declined 8.9% year over year. Short-term debt totaled $500 million at the first-quarter end. As of May 9, 2023, its senior debt received ‘BBB+’ ratings from Standard & Poor’s and Fitch.
Shareholders’ equity of $6,732 million plunged 52.8% year over year.
Book value per share, excluding accumulated other comprehensive income, came in at $56.04, which fell 11.9% year over year. Adjusted operating return on equity came in at 9.5%, which improved 110 basis points year over year.
Capital Deployment Update
Lincoln National returned $76 million in the form of common dividends to its shareholders in the first quarter.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -9.27% due to these changes.
At this time, Lincoln National has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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. It's no surprise Lincoln National has a Zacks Rank #5 (Strong Sell). We expect a below average 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, American Equity Investment (AEL), has gained 8.3% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.
American Equity reported revenues of $561.32 million in the last reported quarter, representing a year-over-year change of -1.1%. EPS of $1.47 for the same period compares with $0.92 a year ago.
For the current quarter, American Equity is expected to post earnings of $1.53 per share, indicating a change of +56.1% from the year-ago quarter. The Zacks Consensus Estimate has changed +12.3% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for American Equity. Also, the stock has a VGM Score of A.
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