Manulife Earnings Preview: North American Operations, Currency Fluctuations From East In Focus

February 10th, 2015 by Trefis Team
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MFC: Manulife Financial logo
MFC
Manulife Financial

Manulife (NYSE:MFC) is scheduled to report earnings for the fourth quarter of 2014 on Thursday, February 12. [1] In the third quarter, the company reported a 6% year-over-year increase in net income and similar growth in core earnings fueled by strong sales in Asia, and partially offset by mixed performance in the U.S. and Canada. Sales of wealth products slowed down in the quarter, but growth in assets under management (AUM) led to higher fee income resulting in improved core earnings. [2]

In this note we review the key trends seen in the fourth quarter that will impact the company’s results. We have a price estimate of $19 for the company’s stock, which is about 10% higher than the current market price.

See our full analysis of Manulife here

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Despite Growth In Asia, FX Headwinds Will Hurt

The company has operations in Japan, China, Hong Kong, Thailand, Malaysia, Indonesia, Singapore and the Philippines, which together account for about a third of the company’s insurance premiums. In the third quarter, insurance sales in Asia grew a whopping 46% year-over-year to $352 million. Japan remained a strong performer, registering an 83% year-over-year increase in sales on the back of growth in corporate product sales and the launch of new retail products in the market. [3] Multiple product launches and an aggressive sales campaign led to a 40% year-over-year uptick in insurance sales in Hong Kong.

Manulife Japan is crucial for Manulife’s Asian operations, as half of the company’s Asian insurance sales and 30% of its wealth management product sales come from Japan. However, the weakening of the Japanese Yen will impact Manulife’s Q4 results. Prudential (NYSE:PRU) recently reported a 4% y-o-y decline in sales in dollars in the fourth quarter despite an increase in the number of policies in force in the country. We expect a similar impact of FX fluctuations on Manulife’s earnings.

Growth In North America

Manulife, which operates under the John Hancock brand in the U.S., had a tough third quarter as it posted a decline in sales of wealth management products. The company’s efforts to introduce product enhancements have had a minimal impact so far. It will be interesting to see how the fourth quarter performance turns out given the company’s focus on enhancing its product lines. Manulife is the eighth largest life insurer in the U.S. market in terms of premiums earned. [4]

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Notes:
  1. Manulife to Release Fourth Quarter and Year End 2014 Financial Results, Manulife Press Release [↩]
  2. Manulife’s CEO Donald Guloien on Q3 2014 Results – Earnings Call Transcript, Seeking Alpha [↩]
  3. Third Quarter 2014 Financial & Operating Results Presentation, Investor Relations [↩]
  4. NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS LIFE AND FRATERNAL INSURANCE INDUSTRY 2013 TOP 25 GROUPS AND COMPANIES BY COUNTRYWIDE PREMIUM [↩]