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Genworth EPS Lags, Beats Top line

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Genworth Financial Inc. (GNW - Free Report) reported second quarter 2012 operating income of 16 cents per share, missing the Zacks Consensus Estimate by 1 cent. Results, however, reversed the year-ago loss of 23 cents. Operating profit for the quarter stood at $80 million, comparing favorably with the loss of $113 million incurred in the second quarter of 2011.

Second quarter results benefited from substantial lower loss at Global Mortgage Insurance. However, declines in Insurance and Wealth Management were partial offsets.

Including net investment gain of $19 million and gain of $15 million from the sale of Genworth Financial Investment Services, tax and accounting financial advisor unit, the company reported net income of $76 million or 16 cents compared with the loss of $136 million or 28 cents per share.

Operational Performance

Genworth’s total revenue decreased 5% year over year in the quarter to $2.5 billion. Top-line declined largely due to lower premiums and lower net investment income. However, it surpassed the Zacks Consensus Estimate of $2.4 billion.

Premium revenue at Genworth declined 10.5% year over year to $1.3 billion in the quarter.

Net investment income declined 4% year over year to $846 million.

Segment Update

Insurance and Wealth Management: Net operating income dipped 42% year over year to $79 million.  The dip in operating income was due to lower income from U.S. Life Insurance (down 36% year over year), International Protection (plummeting 88% year over year) and Wealth Management (down 7.7% year over year).

Global Mortgage Insurance: Segment net operating income of $51 million in the quarter, rebounded from a loss of $77 million in the year-ago quarter. A substantial lower loss at U.S. Mortgage Insurance aided the improvement.

Corporate and Run-Off: The net operating loss narrowed to $50 million in the quarter under review from an operating loss of $74 million in the prior-year period.

Financial Update

Genworth exited the quarter with cash, cash equivalents and invested assets of $77.5 billion, exhibiting a decline of 0.6% from the end-level of 2011.

Genworth’s long-term borrowings stood at $4.8 billion at quarter end, up 29% from 2011 end level.

Zacks Rank

We retain our Neutral long term recommendation on Genworth Financial. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates slight downward pressure on the stock over the near term.

Prudential Financial Inc. (PRU - Free Report) and MetLife Inc. (MET - Free Report) , competing with Genworth Financial, shares a Zacks #3 Rank (short-term Hold rating) indicating no clear directional pressure on the stock over the near term. Both the companies are scheduled to release their respective second quarter earnings results on August 1 after the bell.

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