AIG American International Group Inc

Due to the accidental slip of the first quarter 2012 results last week, MetLife Inc. (MET) again had to come up with the complete results after the closing bell on April 26, 2012

The company unfortunately started the fiscal 2012 by reporting loss in the first quarter of 2012. MetLife registered net operating earnings of $1.46 billion or $1.37 per share compared with $1.32 billion or $1.23 per share in the year-ago quarter. This also compares favorably with the Zacks Consensus Estimate of $1.30 per share.

However, including extraordinary items, which primarily included losses from derivatives amounting to $1.3 billion, the company incurred net loss of $174 million or 16 cents per share in the reported quarter. This deteriorated drastically from an income of $701 million or 66 cents in the year-ago period.

During the reported quarter, MetLife incurred derivative losses of about $2.0 billion or $1.85 per share, along with investment losses and other items worth $110 million or 10 cents per share. Other adjustments to continuing operations amounted to $410 million or 38 cents per share.

These were partially offset by an income tax benefit of $871 million or 81 cents per share, income from discontinued operations of $14 million or 1 cent per share and net income attributable to non-controlling interest of $24 million or 2 cents per share.

Total revenue in the reported quarter was $15.92 billion, slightly more than the prior quarter level of $15.91 billion but well below the Zacks Consensus Estimate of $16.36 billion. MetLife’s premiums grew 6.7% year over year to $9.13 billion, led by the ALICO acquisition.

Fee revenue increased 10% to $2.1 billion, while net investment income rose 16.7% year over year to $6.2 billion. Other revenues witnessed 5.5% year-over-year growth to $597 million.

Meanwhile, MetLife’s total operating expenses ascended 6.6% year over year to $14.6 billion during the reported quarter.

Segment Details

As ALICO has amplified the company’s international presence substantially, in November 2011, MetLife also restructured its revenue streams into three business segments to capitalize on geographic differences. Earlier, the company reported in two geographical segments, namely the US and International. Hence, effective first quarter of 2012, MetLife has started reporting results under the following:

The Americas generated operating revenues of $12.36 billion, up 6.5% year over year. Operating premiums, fees and other revenue increased 7.2% to $8.3 billion. Operating earnings escalated 13.1% year over year to $1.12 billion, reflecting higher claims and benefits.

The segment witnessed modest improvement across annuities, individual and group life and non-medical health products, despite marginal progress in corporate benefit funding. Even Latin America contributed to the growth decently.

Operating revenue from Asia was up 12.0% year over year to $2.94 billion, while premiums, fees and other revenue grew 8% to $2.3 billion. Operating earnings surged 33% year over year to $297 million, reflecting improved performance from ALICO. The growth was also supported by flourishing business in Japan, Korea and Australia.

Operating revenue from EMEA rose 8.4% year over year to $1.08 billion.  Premiums, fees and other revenue in this segment climbed 9% to $899 million. However, operating earnings declined 4% year over year to $76 million, reflecting weakness in the foreign exchange rates. However, the performance in Middle East and Turkey were a let down.

Separately, Corporate & Other operating revenue plunged 21.2% year over year to $305 million as premiums, fees and other revenue plummeted 22.2% to $105 million. Consequently, an operating loss of $68 million was recorded at $104 million, far wider than a loss of $9 million in the prior-year quarter.

Financial Update

As of March 31, 2012, MetLife’s book value per share, excluding accumulated other Comprehensive income (AOCI), increased 10% year over year to $46.52. Reported book value (including AOCI) per share escalated 23% to $53.37 from $43.42 at the end of the first quarter 2011.

Moreover, MetLife had total investments of $503.94 billion as of March 31, 2012, down from $511.38 billion at 2011end. However, cash and cash equivalents surged to $18.67 billion, while total assets increased to $819.60 billion from $796.23 billion on December 31, 2011, long-term debt slightly moved down to $23.39 billion from $23.69 billion and total equity increased to $59.01 billion from $57.9 billion at 2011 end.

Outlook for 2012

Along with its earnings release, MetLife also updated its 2012 guidance. The company now expects 2012 operating earnings in the band of $5,140 - $5,570 million or $4.80 - $5.20 per share.

The company expects The Americas segment to record operating earnings in the range of $3,925 - $4,195, Asia in the $1,110 - $1,210 million range, and the EMEA segment in the range of $275 - $325 million.

Divestiture

MetLife decided to exit its retail banking operations as it contributed a very low percentage in the company’s profit. Nationstar Mortgage LLC volunteered to take up MetLife Bank's reverse mortgage servicing portfolio for an undisclosed price.

Legal Action

MetLife filed a suit of over $757 million against New York based global bank, Morgan Stanley for fraud in residential mortgage securities purchased in 2006 and 2007.

Peer Take

Besides, MetLife’s prime peer, American International Group Inc. (AIG), is expected to release its first quarter financial results after the market closes on May 3, 2012. Another close competitor, Prudential Financial Inc. (PRU) is slated to release its results after the closing bell on May 2, 2012.

We retain our long-term Neutral recommendation on MetLife. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

 
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