MetLife Inc. (MET) reported second quarter operating earnings per share of $1.24, surpassing the Zacks Consensus Estimate of $1.11 per share and $1.10 per share in the year-ago quarter. Operating earnings jumped 45% year over year to $1.33 billion from $914 million in the year-ago period.
During the reported quarter, operating earnings per share were adversely impacted by net investment losses of 14 cents and other adjustments of 41 cents. These were partially offset by net derivative gains of 33 cents, income tax benefit of 6 cents and gain from discontinued operations of 3 cents.
As a result, GAAP net income came in at $1.21 billion or $1.13 per share as compared with $1.53 million or $1.84 per share in the prior-year quarter, based on higher share count.
The upside was primarily due to a robust 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. During the reported quarter, MetLife’s total expenses shot up 31% year over year to $15.43 billion.
Total operating revenue for the reported quarter increased 33% year over year to $16.89 billion and also exceeded the Zacks Consensus Estimate of $15.78 billion. MetLife’s premiums grew 41.2% year over year to $9.3 billion, led by ALICO acquisition. Net investment income surged 25.5% year over year to $5.1 billion, while fee revenue substantially grew 32.9% to $1.97 billion.
Segment Details
Total operating earnings from the U.S. business climbed 12% year over year to $908 million. The ascent was attributable to higher earnings from Insurance and Retirement Products and Corporate Benefit Funding (CBF). The U.S. business premiums, fees and other revenues climbed 6% year over year at $7.6 billion driven by modest premium growth in CBF coupled with higher fee revenue in Retirement Products.
Besides, operating earnings surged 22% in Insurance Products coupled with a 48% increase in Retirement Products. Even the CBF witnessed 34% earnings growth based on higher net investment income. These were, however, partially offset by loss in Auto & Home premiums. This segment under MetLife’s U.S. business declined 23.3% year over year to $56 million based on higher-than-expected catastrophe losses of $174 million.
The International segment’s operating earnings spiked up $507 million from $142 million in the year-ago quarter. The results reflect strong performance after the ALICO acquisition coupled with growth in Latin America and Japan.
In addition, 28% sales growth was witnessed in Japan while 25% growth was witnessed across all international operations. Despite the catastrophe claims and expenses, Japan contributed about 48% to the international segment’s operating earnings.
MetLife Bank’s operating earnings were $14 million, down 79% from the year-ago quarter, primarily owing to lower mortgage servicing revenue. However, Corporate & Other operating loss was recorded at $100 million, slightly lower from a loss of $108 million in the prior-year quarter, benefiting from higher net investment income.
Financial Update
MetLife’s net investment income increased 24% year over year to $5.1 billion, while net investment portfolio loss was $38 million, down from a year-ago loss of $41 million. Besides, derivative gains shrank to $189 million against $782 million in the year-ago quarter.
MetLife’s total investment portfolio was recorded at $466.2 billion at the end of the reported quarter, up from $359.6 billion at the end of prior-year quarter, primarily due to the influx of ALICO.
As of June 30, 2011, MetLife’s book value per share excluding AOCI increased slightly to $45.31 compared with $44.50 as of June 30, 2010. Reported book value (including AOCI) per share climbed 7% to $48.48 versus $45.51 at the end of year-ago period.
Our Take
We believe that MetLife’s solid earnings growth also helps it return wealth to shareholders from time to time. Besides, amalgamation of ALICO has immediately become accretive to earnings, 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, losses in the investment portfolio are likely to impact the results in the upcoming quarters. However, management is also mulling over shedding its banking unit in the near future.
Besides, MetLife’s prime peer, American International Group Inc. (AIG), is expected to release its financial results after the market close on August 4, 2011. Another close competitor, Prudential Financial Inc. (PRU), is scheduled to release its earnings after the market closes on August 3, 2011.
