MetLife Inc. (MET) reported third quarter operating earnings per share of $1.11, three cents ahead of both the Zacks Consensus Estimate and the year-ago quarter. Operating earnings jumped 23% year over year to $1.18 billion from $958 million in the year-ago period.
During the reported quarter, operating earnings per share were adversely affected by net investment losses of 5 cents, other adjustments of 46 cents and tax expense of $1.22. These were partially offset by net derivative gains of $3.94 per share.
As a result, GAAP net income came in at $3.55 billion or $3.33 per share as compared with $286 million or 32 cents per share in the prior-year quarter, despite higher share count.
The upside was primarily due to a robust growth in the International business segment, improved underwriting results as well as higher demand for variable annuities, net investment income and higher-than-expected derivative gains. This was partially offset by underperformance at its Banking and the U.S. business segments along with higher expenses. During the reported quarter, MetLife’s total expenses shot up 26.8% year over year to $15.15 billion.
Total operating revenue for the reported quarter jumped 33% year over year to $17.02 billion and also exceeded the Zacks Consensus Estimate of $16.07 billion. Besides, total revenue substantially surged 65.8% year over year to $20.46 billion. MetLife’s premiums grew 44.1% year over year to $9.3 billion, led by ALICO acquisition. Fee revenue substantially grew 37.6% to $2.0 billion, while net investment income inched down 2.5% year over year to $4.3 billion.
Segment Details
Total operating earnings from the U.S. business plunged 23% year over year to $655 million, given the increase in reserves in higher catastrophe losses. The decline was attributable to reduced earnings from Insurance, Retirement Products and Auto & Home fields. The U.S. business premiums, fees and other revenues climbed 9% year over year at $7.7 billion driven by modest premium growth in Corporate Benefit Funding (CBF) coupled with higher fee revenue in Retirement Products.
Besides, operating earnings dipped 23% in Insurance Products coupled with a 56% decline in Retirement Products. However, the CBF witnessed 45% earnings growth based on higher net investment income. These were, however, partially offset by a 3% year-over-year growth in Auto & Home premiums. The earnings in this segment under MetLife’s U.S. business declined 73% year over year to $22 million based on higher-than-expected catastrophe, primarily from Hurricane Irene, of $88 million.
The International segment's operating earnings jumped up $578 million from $189 million in the year-ago quarter. The results reflect robust performance after the ALICO acquisition coupled with growth in Latin America and Japan. Besides, 28% year-over-year sales growth was witnessed in Japan while 25% growth was witnessed across all international operations. Japan contributed about 55% to the International segment’s operating earnings, driven by reduced claims, lower operating expenses and improved persistency.
MetLife Bank’s operating earnings were $51 million, down 49.5% from the year-ago quarter, primarily owing to higher expenses. However, Corporate & Other operating loss was recorded at $105 million, modestly lower from a loss of $178 million in the prior-year quarter, benefiting from higher net investment income.
Financial Update
MetLife’s net investment income increased 17% year over year to $5.1 billion, while net investment portfolio gain was $14 million, up from a year-ago loss of $72 million. Besides, derivative gains surged to $12.7 billion against a loss of $190 million in the year-ago quarter.
MetLife’s total investment portfolio was recorded at $493.2 billion at the end of the reported quarter, up from $383.2 billion at the end of prior-year quarter, primarily due to the influx of ALICO. As of September 30, 2011, MetLife’s book value per share excluding AOCI increased 9% year over year to $48.69. Reported book value (including AOCI) per share escalated 13% to $55.13 versus $48.93 at the end of the year-ago period.
Recently, MetLife also submitted to the Federal Reserve for approval a capital distribution plan that included both an increase in MetLife's annual dividend as well as the resumption of stock repurchases. However, seeking and gaining approval of capital plan from the Federal Reserve is not expected before early 2012.
Dividend Update
On October 25, 2011, the board of MetLife announced a regular quarterly dividend of 74 cents per share, payable on December 14, 2011 to shareholders of record as on November 9, 2011.
Our Take
We believe that MetLife’s solid earnings growth helps it return wealth to shareholders from time to time. Besides, the amalgamation of ALICO has been scaling the company to new heights and strengthening its fundamental growth position, although related debt cost will weigh on the bottom line for some time. While we think MetLife should continue to benefit from its diversified business mix as well as its leading brand, underperformance in the banking and U.S. operations along with higher expenses are likely to impact the results in the upcoming quarters. However, management is also mulling over shedding most of its banking unit in the near future.
On October 12, 2011, MetLife management had intimidated about its decision to explore a sale of MetLife Bank's depository business as well as its forward mortgage origination business.
Besides, MetLife’s prime peer, American International Group Inc. (AIG), is expected to release its financial results after the market closes on November 3, 2011. Another close competitor, Prudential Financial Inc. (PRU), is scheduled to release its earnings after the market closes on November 2, 2011.
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