Unum Group reported Wednesday that its fourth-quarter earnings were slightly lower than analyst expectations, but the insurer signaled confidence in its financial condition by simultaneously announcing a $1 billion stock buyback.
Unum's operating income for the quarter was $208.6 million, or 66 cents per share, as compared to $218.3 million, or 66 cents per share, in the fourth quarter of 2009, the company said.
The consensus analyst estimate was that the company would earn 69 cents per share, but analyst Colin Devine with Citi Investment Research said he isn't worried, calling it "normal fluctuation."
"They haven't chased sales; they've focused on good underwriting," he said. "If they have to give up a few pennies of earnings, it's going to save a buck or two in losses down the road."
For the whole of 2010, the company earned $2.69 per share, 5 percent more than the company's per-share earnings in 2009 of $2.57.
Tom Watjen, Unum's president and CEO, called the company's relatively flat performance "a nice ending to what was another good year for Unum."
He said the company saw "some marginal improvement in the economy," including some "modest employment growth" and "good momentum" in the company's growth markets, such as voluntary benefits and commercial sales.
Additionally, the company's decision to take action on its strong capital reserve by repurchasing $1 billion in stock over the next 18 months will send "a strong statement about our confidence in the future," Watjen said in a letter to employees.
Unum anticipates operating income per share to grow from 6 percent to 12 percent in 2011, an estimate that includes the effect of the company's share repurchase.
"Financial strength remains a top priority for our company, and today's decision does not adversely impact our position," Watjen said.
Devine agreed, saying that the company's strong cash position arose from its plan to focus on profitable policies instead of quick sales and "phantom earnings."
"That's what's giving them the capital strength to do this at a time when the vast majority of their peers are the walking wounded," Devine said.
Including investment gains, the company earned $225.8 million, or 71 cents per share in the fourth quarter, compared to net income of $199.4 million, or 60 cents share for fourth quarter of 2009.
Unum's U.S. segment posted gains in operating income of 1.5 percent, including growth in group disability segment of 6.1 percent. The increase was due in part to improvements in the company's benefit ratio and higher investment income.
Still, actual premium income in the U.S. segment declined 4 percent.
The company said price competition and a challenging economy contributed to the decline in premium income during the quarter.
The company's United Kingdom division was hit by an operating income drop of 21.5 percent to $48.1 million in the quarter, and operating income in the company's Colonial Life segment fell 11 percent to $60.8 million.
Unum's stock closed at $25.14 Wednesday, down 50 cents from the previous day's close. In after hours trading and following the earnings announcement, Unum's stock was up 8 cents.