Shares of Sun Life Financial (SLF.TO) saw a notable decline, dropping nearly 6% on Friday, after the company reported its quarterly earnings which fell short of analyst expectations.
This marked Sun Life’s first profit miss in twelve quarters, impacted primarily by weaker performance in its U.S. dental insurance business and the recent sale of its Sun Life UK division.
Additionally, the company’s wealth and asset management unit also underperformed, contributing to the downturn.
By Friday afternoon, Sun Life’s shares had decreased by 5.7%.
In contrast, Manulife Financial Corp (MFC.TO), which is Sun Life’s larger competitor, experienced a share increase of 1% after achieving a more than 15-year high on Thursday, buoyed by a stronger-than-expected quarterly profit.
Sun Life’s U.S. dental business, particularly its DentaQuest unit, still confronts several challenges.
Despite the hurdles, CEO Kevin Strain remains optimistic, projecting that DentaQuest will generate $100 million in annual income by 2025.
This forecast has been adjusted from the initial expectation of reaching this milestone in 2023, following the acquisition of DentaQuest for $2.5 billion in 2022 as part of Sun Life’s strategic expansion in the U.S. market.
“We’re still a big believer in this business and the acquisition we did and that it’s going to meet the long-term objectives we had,” Strain commented on the acquisition’s prospects.
Furthermore, the end of the COVID public health emergency last year has led to a decline in Medicaid enrollments for Sun Life’s U.S. dental insurance program.
The costs associated with the remaining members have also increased, prompting the company to negotiate for higher payments from states.
Strain disclosed that about 25% of its Medicaid business has already been repriced close to the company’s pricing targets, with the remainder expected to be completed by year-end.
Strain expressed confidence in a recovery for the dental business by 2025.
Meanwhile, the U.S. business segment, which represents about a fifth of Sun Life’s overall profits, reported a 20% decline in earnings for the first quarter.
“Given the strong results reported by peers this quarter, we believe Sun Life stock could be under pressure in the near term,” noted Gabriel Dechaine, an analyst at National Bank.
Including Friday’s losses, Sun Life’s stock has seen only about a 1% increase year-to-date, significantly trailing behind Manulife’s 22% gain.