Aflac reported its fiscal second quarter with the same headline tension it has carried for years: a Japanese yen roughly 9 percent weaker than a year ago makes every dollar-denominated line look worse than the businesses actually performed. Total revenues eased 1 percent to $4.1 billion and reported net earnings rose 38 percent to $825 million - but that GAAP climb was itself a mirage of a different kind, driven not by stronger operations but by far smaller investment losses than the year-ago quarter carried. The cleaner lens is the adjusted number management uses for the insurance operations: adjusted earnings fell 7.7 percent to $883 million, and adjusted earnings per diluted share slipped 1.7 percent to $1.75. Strip out the quarter's foreign currency translation and the underlying number actually rose - $1.80 a diluted share, up 1.1 percent, a second consecutive quarter of growth through that lens.
The tension is resolved by looking at the two engines behind the currency. Aflac Japan, which generates the majority of adjusted earnings, grew its pretax adjusted profit 3.4 percent in yen to $741 million (118.2 billion yen) even as net earned premiums declined on the high prior-year launch baseline of its Miraito cancer product - sales are up 7 percent for the first half, and new medical and savings-type products are adding younger customers. Aflac U.S. grew net earned premiums 2.3 percent on steady persistency, though higher benefits trimmed its pretax margin. And beneath the quarter sits the capital story: management returned $1.3 billion through buybacks and dividends and kept its 43-year dividend-increase record on a path to a 44th year, and expanded the internal ceiling on reinsuring its Japan block - a move aimed squarely at freeing capital and lifting return on equity. At roughly $121 a share, the stock trades near 16 times trailing adjusted earnings, a premium to the U.S. life insurance group that the market is paying for a high-return, low-leverage franchise with a durable moat in Japan.