Global insurance giant MetLife Inc. (MET) is scheduled to release its second quarter earnings results on July 29. The Zacks Consensus Estimate for the second quarter is $1.01 per share, representing a growth of about 14.5% over the year-ago quarter.
Along with the first-quarter results, MetLife reaffirmed its 2010 outlook, which represents a robust operating earnings growth of about 50% over 2009. This is estimated to be in the range of $3.3 billion to $3.6 billion or $4.00 to $4.40 per share. Further, MetLife’s revenue growth is estimated to be about 6% over 2009, in 2010.
Previous Quarter Performance
MetLife’s reported first quarter earnings (excluding after-tax net investment gains and losses) of $834 million or $1.01 per share, was significantly ahead of $131 million or 16 cents per share in the year-ago quarter. Results were also ahead of the Zacks Consensus Estimate of 97 cents per share. Reported net income was $805 million compared with a net loss of $574 million in the prior-year quarter.
MetLife’s total revenue for the reported quarter increased 17% to $13.1 billion from $11.1 billion in the prior-year quarter. Earned premiums for the quarter increased 12% year-over-year to $6.9 billion. Net investment income increased 31% year-over-year to $4.3 billion, led by robust performance from corporate joint ventures and hedge funds, partially offset by negative return from real estate funds. However, operating expenses were marginally on the higher side.
Total operating earnings from the US Business increased dramatically by 325% year-over-year to $757 million. The robust augmentation was attributable to strong business growth, significant equity market improvements, higher net investment income and improved interest spreads. The International segment’s operating earnings increased 15% year-over-year to $151 million. The double-digit business growth across all regions was more than offset by the $13 million charge related to tax incentives and decline in the Auto & Home and MetLife banking segments’ operating earnings.
Agreement of Analysts
It is always interesting to compare the changes in the consensus estimates while treading into the earnings season. This reflects how sentiment around the stock has changed. Estimate revision trends among the analysts reflect a negative bias for MetLife’s earnings in the June quarter. Over the last 30 days, 8 of the 17 analysts covering the stock have pulled down the estimates for the quarter ended June 2010, though no downward revisions were witnessed over the last 7 days. However, none of the analysts made an upward revision over the last 30 days and last 7 days.
We note that for the third quarter, 7 analysts out of 14 have decreased their estimate in the last 30 days. The Zacks Consensus Estimate for the third quarter is $1.06 per share. There seems to be negative opinion hovering for fiscal 2010, as 11 of the total 18 decreased their estimate in the last 30 days and 1 analyst decreased the estimate in the last 7 days. None of the analysts increased the estimate in the last 30 days and last 7 days.
The bearish sentiment for the upcoming quarter reflects the macro concerns brewing up for MetLife and its peer group from the current weak market conditions in the home and auto segment, which led to high combined ratio in the first quarter and is expected to remain high going forward. Besides, MetLife’s pending ALICO acquisition is expected to close by the end of 2010 and will be immediately accretive to earnings, although related debt cost could pressurize the bottom-line for some time.
Magnitude of Estimate Revisions
The magnitude of revisions is moderate following the first-quarter results. Overall, estimates for the second quarter have gone down from $1.07 to the current level of $1.06 per share in the last 60 days. However, for fiscal 2010, estimates saw a modest decline to $4.18 per share from $4.26 over the past 60 days. Nevertheless, this trend diverges for MetLife for 2011, with estimates going up by 3 cents to $5.30 from $5.27 in the last 60 days.
Surprise
Going by past trends, we expect MetLife to exceed estimates. The company’s reported earnings per share did not miss its expectations in any of the previous quarters and has a positive four-quarter average of 8.01%. This implies that on average, MetLife has topped the Zacks Consensus Estimate by 8.01% over the last four quarters.
Our Take
Despite several market related headwinds that reduced the top-line growth in 2009, MetLife results came out modestly positive. We believe that further improvement will be achieved in 2010 aided by cost cuts, improved investment returns and higher revenue, although a return to historical growth levels is not expected until at least 2011.
Also, the ALICO acquisition is expected to boost results though debt costs related to acquisition might remain an overhang for some time. MetLife has a secured exposure to future investment losses that is supported by its statutory capital and a modest upside in the operating earnings projection. Hence, we believe that MetLife is poised to propel its growth as the economy rebounds in the near to medium term.
We currently have a Neutral recommendation on MetLife, which corresponds to the Zacks #3 Rank (Hold).
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