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MetLife Inc. (MET - Analyst Report) reported third-quarter 2012 operating earnings per share of $1.32, comfortably beating both the Zacks Consensus Estimate of $1.28 and year-ago quarter’s earnings of 91 cents. Operating earnings surged 47% year over year to $1.42 billion.

During the reported quarter, operating earnings per share were negatively affected by net derivative losses of 67 cents, goodwill impairment of $1.74 and other adjustments of 67 cents. These were partially offset by net investment gains of 2 cents and income tax benefit of 43 cents. Including these, GAAP net loss soared substantially to $984 million or 92 cents per share against net income of $3.43 billion or $3.21 per share in the prior-year quarter.

The upbeat results were primarily due higher net investment income, as well as lower-than-expected operating expenses. This was partially offset by significantly reduced top-line growth driven by unfavourable impact of foreign exchange rates and low interest rate environment that led to underperformance across Europe, Middle East and EMEA as well as generated higher derivative losses.

During the reported quarter, MetLife’s total operating expenses dipped 4.6% year over year to $14.59 billion, whereas total expenses escalated 14.2% year over year to $17.5 billion.

Total operating revenue for the reported quarter was flat year over year at $16.61 billion but fell short of the Zacks Consensus Estimate of $16.66 billion. Moreover, total revenue plunged 19.3% year over year to $16.5 billion.

MetLife’s premiums slipped 2.6% year over year to $9.1 billion, while fee revenue improved 6.7% to $2.13 billion and net investment income spiked up 29.8% year over year to $5.52 billion. Other revenues declined 36.8% year-over-year growth to $455 million.

Segment Details

The Americas’ premiums, fees and other revenue deteriorated by 2% to $8.4 billion, given the decline in pension close-out sales. Further, operating earnings surged 58% year over year to $1.2 billion, reflecting higher fees, lower catastrophe losses and claims and benefits. The segment witnessed improvements in the retail, group, voluntary and worksite benefits businesses along with favourable claims experience, partially offset by lower income annuity sales.

Growth was also observed in individual and group life along with non-medical health products although variable annuity sales plunged 46% year over year. Meanwhile, earnings growth was witnessed in corporate benefit funding largely due to strong interest margins and lower expenses. Even Latin America posted operating earnings growth of 8% year over year and total sales of 28%, driven by improved growth channels across the region.

Operating revenue from Asia went up 8.0% year over year to $3.21 billion, while premiums, fees and other revenue grew 7% to $2.5 billion, driven by sales and persistency in Japan and Korea as well as high investment income. In addition, operating earnings increased 17% year over year to $259 million.

Operating revenue from EMEA declined 11.6% year over year to $775 million. Premiums, fees and other revenue in this segment slipped 10% to $653 million. However, operating earnings slipped 5.0% year over year to $62 million, reflecting unfavourable foreign exchange augmented growth in Turkey, Russia and the Gulf countries. However, growth remained sluggish in the Western Europe.

Separately, Corporate & Other operating revenue was recorded at $171 million, down 35.7% from the year-ago period. Additionally, an operating loss of $134 million was incurred, higher than the loss of $102 million in the prior-year quarter.

Financial Update

At the end of the reported quarter, MetLife’s net investment income increased 2% year over year to $5.0 billion, while net investment portfolio gain was $43 million, up from $9 million in the year-ago quarter. In addition, post-tax derivative losses surged to $543 million ($718 million pre-tax) in stark contrast to a gain of $2.8 billion ($4.2 billion pre-tax) in the year-ago quarter. The downside was driven by interest rate volatility.

Meanwhile, under the company’s variable annuity hedging program, pre-tax variable investment income was at par with the year-ago quarter at $260 million in the reported quarter.

As of September 30, 2012, MetLife’s book value per share excluding AOCI, increased 2.6% year over year to $47.70. Reported book value (including AOCI) per share grew 9.8% to $58.35 versus $53.15 at the end of the year-ago period.

At the end of September 2012, MetLife had total investments of $521.56 billion, up from $511.38 billion at 2011-end. Also, cash and cash equivalents surged to $17.0 billion, total assets increased to $846.29 billion and long-term debt slightly moved down to $19.62 billion, while total equity increased to $64.4 billion, from 2011-end.

Peer Take

MetLife’s prime peer, American International Group Inc. (AIG - Analyst Report), is expected to release its third quarter financial results today, after the closing bell.

Meanwhile, another close competitor, Prudential Financial Inc. (PRU - Analyst Report) is slated to release its third quarter financial results aftaer the market closes on November 7.

Currently, MetLife carries a Zacks Rank #3, which implies a short-term Hold and long-term Neutral recommendation.

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