Sun Life Financial executives said a dividend hike and bigger share buyback won’t stop them from making a future business-building acquisition.
The comment came as Sun Life Financial reported first-quarter “underlying” net income of $717-million, or $1.20 a share, as of March 31, 2019. Analysts expected, on average, $1.21 per share, according to I/B/E/S data from Refinitiv. This was down from $770-million, or $1.26 a share, a year prior.
Sun Life has underlying earnings that exclude some costs as a useful measure of its performance. For example, the company excludes the effects of changes it makes in actuarial assumptions – such as how long a customer will live – for the life insurance policies it has sold. Sun Life’s net income, calculated according to international financial reporting standards, was $623-million in the quarter, down 7 per cent from the prior year.
Despite the slight miss, Sun Life announced a 5-per-cent dividend increase, or 2.5 cents per share.
Sun Life – which surpassed $1-trillion in assets under management this quarter – also announced it would increase its stock buyback program if regulators approve. It said it has already repurchased all 14 million shares of its program and will add another four million common shares.
But the uptick in the buyback program led analysts to wonder where that left the company’s merger and acquisition plans.
“This just gives us a little bit more flexibility,” said Sun Life CEO Dean Connor, who referenced the recent $200-million Bentall GreenOak acquisition, set to close this summer, as a deal that can co-exist with buybacks. “We have the capital to do things like that to give us the flexibility to do more [buybacks] but also to do acquisitions, small, medium and large.”
In Canada, underlying net income in the country fell 20 per cent to $237-million.
Sun Life’s chief financial officer Kevin Strain pointed to a weaker season for registered retirement savings plans in the Canadian market, as well as lower institutional sales in its defined-benefit pension business, for the domestic profit decline.
Asian markets are the major contributors to growth for both Sun Life and its competitor Manulife Financial Corp. While Sun Life saw a slight earnings decline in Asia of 5 per cent, to $122-million this quarter, sales increased by 24 per cent.
Sun Life operates in a number of markets in Asia, including mainland China, Hong Kong, Vietnam, Philippines, Indonesia, India and Malaysia. Mr. Strain said there was a “fair degree of volatility” in six of the eight Asian markets, contributing to the profit decline.
The boost in sales, said Mr. Strain, came from a growth in the number of advisers and its distribution in India where Sun Life continues to expand in the branch network of HDFC, one of the major banks in India.
Manulife, which reported its first-quarter earnings last week, saw its “core” earnings from its Asia division total $520-million, up 21 per cent from the same period last year. (Core earnings also exclude certain measures.) Part of the Asian growth came from a spike in Japanese sales of company-owned life insurance (COLI), a product that pays businesses when covered employees die. The COLI product has been temporarily halted after a proposed regulatory change could eliminate certain tax benefits the product provides.
Sun Life does not operate in Japan.
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