Genworth Financial Incorporation (GNW) reported second-quarter 2010 operating earnings of 24 cents, lagging the Zacks Consensus Estimate of 28 cents by 4 cents. Results were substantially higher than 2 cents reported in second-quarter 2009. Operating income was $118 million compared with $9 million in the year-ago period.
The year-over-year improvement was driven by strong results at International segment was well as reduced losses at U.S. Mortgage Insurance and Corporate and Other, partially offset by a weak Retirement and Protection segment.
Net income available to common shareholders was $42 million or 8 cents per share in the reported quarter compared with a net loss of $50 million or 11 cents per share available to common shareholders in the year-ago period. Net income includes investment losses of $76 million compared with $59 million in the prior-year period.
Genworth’s total revenue declined 2.9% in the quarter to $2.41 billion from $2.48 billion in the prior-year quarter. Results lagged the Zacks Consensus Estimate of $2.62 billion. A decline in premium revenues coupled with an increase in investment losses primarily resulted in the overall decline.
Premium revenue at Genworth declined 2.1% year over year to $1.47 billion in the quarter. Net investment income increased 5.4% year over year to $823 million. Net investment losses deteriorated to $159 million from a loss of $53 million in second-quarter 2009.
In the quarter under review, total benefits and expenses of Genworth declined 7.8% over the prior-year quarter to $2.3 billion.
Segment Update
Retirement and Protection: Net operating income declined to $114 million in the quarter from $123 million in second-quarter 2009. Earnings improvement at Long Term Care and Wealth Management were more than offset by a decline in earnings at Life Insurance.
International: Net operating income improved to $105 million in the quarter from $87 million in second-quarter 2009. Improved profit in Canada and Australia largely contributed to the overall improvement.
U.S. Mortgage Insurance: Operating loss narrowed to $40 million compared with a loss of $134 million in the prior-year quarter. The improvement was attributable to lower new delinquencies, improved cure rates and increased loss mitigation savings in the quarter.
Corporate and other: Net operating loss was $61 million compared with an operating loss of $67 million in second-quarter 2009.
Financial Update
Cash, cash equivalents and invested assets balance of Genworth at the end of the quarter were $72.5 million compared with $69.2 million at the end of the fourth quarter 2009.
Genworth’s long-term borrowings increased to $4.3 million at quarter-end from $3.6 million at the end of fourth-quarter 2009.
New product offering, distribution expansion and enhanced service offerings as well as prudent underwriting standards will position Genworth to post solid results going forward. However, a high unemployment level and a lackluster economy keep us cautious.
We maintain our “Neutral” recommendation on Genworth. The quantitative Zacks #3 Rank (Hold) for the company indicates no clear directional pressure on the shares over the near term.
