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MetLife (MET) Q3 Earnings Miss Despite Rising Investment Returns
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MetLife, Inc. (MET - Free Report) reported third-quarter 2023 adjusted operating earnings of $1.97 per share, which missed the Zacks Consensus Estimate by 1%. The bottom line, however, increased 44% year over year.
Adjusted operating revenues of MetLife amounted to $18.2 billion, which declined 22.3% year over year. However, the top line beat the consensus mark by 1.7%.
The weaker-than-expected third-quarter earnings were caused by higher net derivative losses. The negatives were partially offset by lower expenses, higher investment returns, volume growth across some segments and improved contributions from the U.S., Latin America and EMEA businesses.
Adjusted premiums, fees and other revenues, excluding pension risk transfer (PRT), were $11.7 billion, up 8% year over year. Adjusted net investment income rose 21% year over year to $5.1 billion in the quarter under review due to high interest rates, asset growth and private equity returns.
Total expenses of $15.3 billion fell from $20.9 billion a year ago and were below our estimate of $15.9 billion due to lower policyholder benefits and claims. The adjusted expense ratio, excluding total notable items related to adjusted other expenses and PRT, increased 40 basis points (bps) year over year to 20.6%.
Net income plunged 62% year over year to $422 million and significantly missed our model estimate due to higher net derivative losses. Adjusted return on equity, excluding AOCI other than FCTA, improved 430 bps year over year to 14.9%.
Inside MetLife’s Segments
U.S.: The segment reported adjusted earnings of $980 million, which increased 30% year over year and comfortably beat our estimate in the third quarter due to higher recurring interest margins, growing volumes and favorable underwriting margins. Adjusted premiums, fees and other revenues, excluding PRT of $6.9 billion, rose 9% year over year.
Asia: Adjusted earnings in the segment amounted to $275 million, which rose 3% year over year in the quarter under review due to increased variable investment income. However, the figure missed our estimate. Adjusted premiums, fees & other revenues declined 3% year over year to $1.7 billion in the third quarter.
Latin America: Adjusted earnings of $199 million increased 25% from a year ago and beat our estimate of $162.9 million due to growing volumes and favorable underwriting. Adjusted premiums, fees & other revenues advanced 32% year over year to $1.5 million in the segment due to growing sales in Mexico and Chile.
EMEA: The segment’s adjusted earnings were $88 million, which increased 38% at a reported basis and 35% at cc year over year in the third quarter, comfortably beating our estimate on the back of higher volumes, recurring interest margins and favorable underwriting. Adjusted premiums, fees & other revenues of $588 million climbed 9% year over year due to solid sales.
MetLife Holdings: Adjusted earnings in the segment rose 78% year over year to $208 million due to increased variable investment income but missed our estimate. Adjusted premiums, fees & other revenues fell 8% year over year to $910 million in the quarter under review.
Corporate & Other: Adjusted loss of $262 million marginally widened from the prior-year quarter’s loss of $258 million.
Financial Update (as of Sep 30, 2023)
MetLife exited the third quarter with cash and cash equivalents of $14.9 billion, which decreased from $20.2 billion at 2022-end. Total assets of $652.1 billion decreased from $663.1 billion at 2022-end.
Long-term debt totaled $15.5 billion, up from $14.6 billion at the prior-year end. It also had a short-term debt of $161 million. Total equity of $25.9 billion decreased from $30.1 billion at 2022-end.
Capital Deployment Update
MetLife bought back shares worth $800 million during the third quarter and an additional $250 million in October.
Previous Outlook
Earlier, the company stated that it expects pre-tax variable investment income to be around $2 billion for 2023. Corporate & Other adjusted losses were expected within $650-$750 million for the year. The effective tax rate was projected in the range of 22-24%. MET expected its MetLife Holdings’ adjusted premiums, fees and other revenues to decline 12-14% in 2023 and then by 6-8% per annum. It had expected to generate adjusted earnings of $1-$1.2 billion in 2023 from this segment.
It stated that within three years, the company targets adjusted return on equity within 13-15%. It is expected to keep free cash flows within the 65-75% range of adjusted earnings. Further, it is aiming at a direct expense ratio of 12.6%. In the near term, MET expected its group benefits’ adjusted premiums, fees and other revenues to grow 4-6% per annum.
The Zacks Consensus Estimate for Trupanion’s current year earnings has improved by a penny in the past 30 days. It beat earnings estimates twice in the past four quarters and missed on two occasions. Also, the consensus mark for TRUP’s revenues in 2023 suggests 20.1% year-over-year growth.
The consensus mark for Employers Holdings’ current year earnings indicates a 17.8% year-over-year increase. It beat earnings estimates in all the past four quarters, with an average surprise of 26.5%. Furthermore, the consensus estimate for EIG’s revenues in 2023 suggests 19.8% year-over-year growth.
The Zacks Consensus Estimate for AMERISAFE’s current year earnings is pegged at $2.90 per share, which improved by 2 cents in the past week. It has witnessed one upward estimate revision against none in the opposite direction during this time. It beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 14%.
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MetLife (MET) Q3 Earnings Miss Despite Rising Investment Returns
MetLife, Inc. (MET - Free Report) reported third-quarter 2023 adjusted operating earnings of $1.97 per share, which missed the Zacks Consensus Estimate by 1%. The bottom line, however, increased 44% year over year.
Adjusted operating revenues of MetLife amounted to $18.2 billion, which declined 22.3% year over year. However, the top line beat the consensus mark by 1.7%.
The weaker-than-expected third-quarter earnings were caused by higher net derivative losses. The negatives were partially offset by lower expenses, higher investment returns, volume growth across some segments and improved contributions from the U.S., Latin America and EMEA businesses.
MetLife, Inc. Price, Consensus and EPS Surprise
MetLife, Inc. price-consensus-eps-surprise-chart | MetLife, Inc. Quote
Behind the Headlines
Adjusted premiums, fees and other revenues, excluding pension risk transfer (PRT), were $11.7 billion, up 8% year over year. Adjusted net investment income rose 21% year over year to $5.1 billion in the quarter under review due to high interest rates, asset growth and private equity returns.
Total expenses of $15.3 billion fell from $20.9 billion a year ago and were below our estimate of $15.9 billion due to lower policyholder benefits and claims. The adjusted expense ratio, excluding total notable items related to adjusted other expenses and PRT, increased 40 basis points (bps) year over year to 20.6%.
Net income plunged 62% year over year to $422 million and significantly missed our model estimate due to higher net derivative losses. Adjusted return on equity, excluding AOCI other than FCTA, improved 430 bps year over year to 14.9%.
Inside MetLife’s Segments
U.S.: The segment reported adjusted earnings of $980 million, which increased 30% year over year and comfortably beat our estimate in the third quarter due to higher recurring interest margins, growing volumes and favorable underwriting margins. Adjusted premiums, fees and other revenues, excluding PRT of $6.9 billion, rose 9% year over year.
Asia: Adjusted earnings in the segment amounted to $275 million, which rose 3% year over year in the quarter under review due to increased variable investment income. However, the figure missed our estimate. Adjusted premiums, fees & other revenues declined 3% year over year to $1.7 billion in the third quarter.
Latin America: Adjusted earnings of $199 million increased 25% from a year ago and beat our estimate of $162.9 million due to growing volumes and favorable underwriting. Adjusted premiums, fees & other revenues advanced 32% year over year to $1.5 million in the segment due to growing sales in Mexico and Chile.
EMEA: The segment’s adjusted earnings were $88 million, which increased 38% at a reported basis and 35% at cc year over year in the third quarter, comfortably beating our estimate on the back of higher volumes, recurring interest margins and favorable underwriting. Adjusted premiums, fees & other revenues of $588 million climbed 9% year over year due to solid sales.
MetLife Holdings: Adjusted earnings in the segment rose 78% year over year to $208 million due to increased variable investment income but missed our estimate. Adjusted premiums, fees & other revenues fell 8% year over year to $910 million in the quarter under review.
Corporate & Other: Adjusted loss of $262 million marginally widened from the prior-year quarter’s loss of $258 million.
Financial Update (as of Sep 30, 2023)
MetLife exited the third quarter with cash and cash equivalents of $14.9 billion, which decreased from $20.2 billion at 2022-end. Total assets of $652.1 billion decreased from $663.1 billion at 2022-end.
Long-term debt totaled $15.5 billion, up from $14.6 billion at the prior-year end. It also had a short-term debt of $161 million. Total equity of $25.9 billion decreased from $30.1 billion at 2022-end.
Capital Deployment Update
MetLife bought back shares worth $800 million during the third quarter and an additional $250 million in October.
Previous Outlook
Earlier, the company stated that it expects pre-tax variable investment income to be around $2 billion for 2023. Corporate & Other adjusted losses were expected within $650-$750 million for the year. The effective tax rate was projected in the range of 22-24%. MET expected its MetLife Holdings’ adjusted premiums, fees and other revenues to decline 12-14% in 2023 and then by 6-8% per annum. It had expected to generate adjusted earnings of $1-$1.2 billion in 2023 from this segment.
It stated that within three years, the company targets adjusted return on equity within 13-15%. It is expected to keep free cash flows within the 65-75% range of adjusted earnings. Further, it is aiming at a direct expense ratio of 12.6%. In the near term, MET expected its group benefits’ adjusted premiums, fees and other revenues to grow 4-6% per annum.
Zacks Rank & Key Picks
MetLife currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Finance space are Trupanion, Inc. (TRUP - Free Report) , Employers Holdings, Inc. (EIG - Free Report) and AMERISAFE, Inc. (AMSF - Free Report) . While Trupanion and Employers Holdings currently sport a Zacks Rank #1 (Strong Buy) each, AMERISAFE has a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Trupanion’s current year earnings has improved by a penny in the past 30 days. It beat earnings estimates twice in the past four quarters and missed on two occasions. Also, the consensus mark for TRUP’s revenues in 2023 suggests 20.1% year-over-year growth.
The consensus mark for Employers Holdings’ current year earnings indicates a 17.8% year-over-year increase. It beat earnings estimates in all the past four quarters, with an average surprise of 26.5%. Furthermore, the consensus estimate for EIG’s revenues in 2023 suggests 19.8% year-over-year growth.
The Zacks Consensus Estimate for AMERISAFE’s current year earnings is pegged at $2.90 per share, which improved by 2 cents in the past week. It has witnessed one upward estimate revision against none in the opposite direction during this time. It beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 14%.