Genworth Financial Inc. (GNW) reported its second quarter operating loss of 15 cents per share, wider than the Zacks Consensus Estimate of a loss of 3 cents. Results were way behind 24 cents earned in the last year. Operating loss for the quarter stood at $74 million, compared with the operating profit of $118 million in the year-ago period.

A substantially higher year-over-year loss at the U.S. Mortgage Insurance segment, partially offset by better results at Retirement & Protection and at International, resulted in the company’s soft performance.

Including net investment losses of $22 million, net loss available to common shareholders was $96 million or 20 cents per share in the reported quarter compared with net income of $42 million or 8 cents per share available to common shareholders in the comparable period last year. The prior year quarter included net investment losses of $76 million.

Operational Performance

Genworth’s total revenue improved 10% in the quarter to $2.67 billion from $2.41 billion in the prior-year quarter. An improvement in investment income as well as insurance and investment product fees largely drove the overall revenue improvement.

Premium revenue at Genworth declined 1% year over year to $1.46 billion in the quarter. But, net investment income increased 7% year over year to $881 million.

Segment Update

Retirement and Protection: Net operating income surged 31% year over year to $149 million in the quarter from $114 million in second quarter 2010, led by higher income from the life insurance and Wealth Management businesses.

International: Net operating income increased 2% year over year to $107 million in the quarter from $105 million in the second quarter of 2010. Better profit Lifestyle Protection business led to the improvement.

U.S. Mortgage Insurance: Operating loss widened to $253 million from a loss of $40 million in the prior-year quarter. Continued aging of delinquent loans adversely affected the results.

Corporate and Other: Net operating loss was $77 million in comparison to an operating loss of $61 million in the prior-year period.

Financial Update

At first quarter-end, cash, cash equivalents and invested assets of Genworth stood at $72.2 billion, a tad lower than $72.3 billion at 2010-end.

Genworth’s long-term borrowings decreased to $4.76 billion at the end of the quarter from $4.95 million at 2010 end.

Peer Comparison

MetLife Inc. (MET), which competes with Genworth, reported second quarter operating earnings per share of $1.24, exceeding the Zacks Consensus Estimate of $1.11 and $1.10 in the year-ago quarter.

The upside was primarily due to strong growth in the International business segment, strong underwriting results as well as higher variable annuity deposits and net investment income. This was partially offset by underperformance at its Banking and the Auto & Home segments, higher expenses and lower-than-expected derivative gains.

We retain our Underperform recommendation on Genworth. The quantitative Zacks #5 Rank (short-term Strong Sell rating) for the company indicates downward pressure on the stock over the near term.

 
Zacks Investment Research