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MetLife Inc. ( MET - Analyst Report ) reported second-quarter 2012 operating earnings per share of $1.33, smoothly outpacing both the Zacks Consensus Estimate of $1.25 and year-ago quarter’s earnings of $1.13. Operating earnings escalated 18% year over year to $1.43 billion.
During the reported quarter, operating earnings were adversely affected by net derivative gains of $1.96 per share, partially offset by net investment losses of 6 cents per share, other adjustments of 67 cents per share, income tax expense of 43 cents per share and net income attributable to non-controlling interest of 1 cent per share. Including these, GAAP net income soared substantially to $2.23 billion or $2.12 per share against $1.07 billion or $1.00 per share in the prior-year quarter.
The upbeat results were primarily due to a robust earnings growth across U.S., Asia and EMEA along with improved underwriting results, higher net investment income, higher-than-expected derivative gains as well as lower-than-expected operating expenses. This was partially offset by lower-than-expected top-line growth across the U.S. and EMEA, particularly led by low premiums’ growth and continued underperformance from variable annuities as well as low interest rate environment.
During the reported quarter, MetLife’s total operating expenses inched down 0.9% year over year to $14.75 billion, whereas total expenses dipped 3.7% year over year to $15.1 billion.
Total operating revenue for the reported quarter edged up 1% year over year to $16.79 billion and also exceeded the Zacks Consensus Estimate of $16.54 billion. However, total revenue increased 7.3% year over year to $18.4 billion.
MetLife’s premiums slipped 1.4% year over year to $9.14 billion, while fee revenue improved 4.8 % to $2.0 billion and net investment income crawled up 3.5% year over year to $5.19 billion. Other revenues generated a 1.3% year-over-year growth to $464 million.
The Americas generated operating revenues of $12.42 billion, down 0.5% on a year-over-year basis. Operating premiums, fees and other revenue were slightly down at $8.4 billion, owing to the decline in pension close-out sales.
Further, operating earnings escalated 11.1% year over year to $1.13 billion, reflecting lower claims and benefits. The segment witnessed improvements in the retail life business and favorable claims experience, partially offset by lower income annuity and life sales.
Growth was also observed in individual and group life along with non-medical health products although variable annuity sales plunged 34% year over year and underperformance was witnessed in corporate benefit funding. Even Latin America posted operating earnings growth of 5% year over year and total sales of 4%, driven by improved immediate annuity sales in Chile along with accident and health sales in Argentina.
Operating revenue from Asia went up 9.7% year over year to $3.05 billion, while premiums, fees and other revenue grew 6% to $2.3 billion, driven by growth in Japan, China, Korea and Australia, as well as improved persistency in both Japan and Korea. In addition, operating earnings surged 61% year over year to $275 million, reflecting improved performance from ALICO.
Operating revenue from EMEA dipped 5.7% year over year to $972 million. Premiums, fees and other revenue in this segment slipped 4% to $815 million. However, operating earnings soared 28% year over year to $82 million, reflecting augmented growth in Turkey, Russia and the Gulf countries.
Separately, Corporate & Other operating revenue was recorded at $349 million, almost in line with the year-ago period. Additionally, an operating loss of $12 million was incurred, far narrower than the loss of $66 million in the prior-year quarter, since higher investment income was offset by loss of earnings from MetLife Bank.
At the end of the reported quarter, MetLife’s net investment income increased 4% year over year to $5.2 billion, while net investment portfolio gain was $4 million, up from a year-ago loss of $347 million. In addition, post-tax derivative gains surged to $1.3 million ($2.09 billion pre-tax) in stark contrast to a gain of $195 million ($352 million pre-tax) in the year-ago quarter.
The upside was driven by interest rate volatility and higher-than-expected gains in the company’s variable annuity hedging program, under which pre-tax variable investment income surged to $371 million in the reported quarter from $273 million in the year-ago quarter.
As of June 30, 2012, MetLife’s book value per share excluding AOCI, increased 12% year over year to $48.60. Reported book value (including AOCI) per share escalated 22% to $56.83 versus $46.56 at the end of the year-ago period.
At the end of June 2012, MetLife had total investments of $516.4 billion, up from $511.43 billion at 2011-end. Also, cash and cash equivalents surged to $16.0 billion, total assets increased to $825.20 billion and long-term debt slightly moved down to $18.9 billion, while total equity increased to $62.7 billion, from 2011-end.
Outlook for 2012
In March 2012, management detailed out its earnings growth projections for 2012. MetLife guided the operating earnings in the range of $5.14-5.57 billion or $4.80-5.20 per share.
Segment-wise, The Americas is expected to record operating earnings in the range of $3.925 4.195 billion, Asia is projected to report in the band of $1.11-1.21 billion and EMEA segment in the range of $275-325 million. Meanwhile, loss from Corporate & Other is anticipated in the range of $170-160 million.
Within The Americas, $1.315-1.395 billion of earning are expected to be from retail, $1.01-1.07 billion from corporate benefit funding and $525-575 million from Latin America. Group, voluntary & worksite benefits are estimated to contribute within $1.075-1.155 billion to The Americas.
On May 23, 2012, MetLife charted out its growth goals to be achieved by 2016, whereby management expects to increase its ROE within 12-14%, up from 10.3% in 2011, driven by higher operating earnings. The company also projects net pre-tax savings of $600 million, while contribution from the emerging markets is expected to increase to over 20% of operating earnings.
Additionally, MetLife is focusing on shifting its product mix toward protection products and away from more capital-intensive products, in order to generate more predictable operating earnings and cash flows, thereby improving its risk profile and free cash flow.
Meanwhile, another close competitor, Prudential Financial Inc. ( PRU - Analyst Report ) reported core operating earnings for the second-quarter of 2012 of $1.34 per share, trailing much lower than the Zacks Consensus Estimate of $1.55.
Moreover, the results dwindled 14.7% on a year-over-year basis. The lackluster earnings were primarily due to the outcome of higher claims experience and expense levels, partially offset by revenue growth and a lower share count.
Currently, MetLife carries a Zacks Rank #3, which implies a short-term Hold and long-term Neutral recommendation.
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