MetLife’s (MET) share price rose slightly as they released their 4th quarter earnings after the market closed on February 3rd. For the quarter, MetLife reported net income available to common stockholders at $954 million, or $1.20 a share. It also posted gains in operating income of $148 million, or $0.19 a share. While low, this beat conservative analysts’ opinions by about 5 cents a share. However, these earnings are bleak compared to last years’ 4th quarter earnings of $1.54 a share. The fourth quarter results brought the year’s net income totals to $3.1 billion or $4.14 a share, which is a 25% decrease from 2007’s net income of $5.48 a share. Despite the relatively weak numbers, the release of the earnings gave MetLife stock a jump of around 3%.
Inside the Earnings
The weak quarter earnings have partially been attributed to the international presence of MetLife and the negative impact of the currency exchange rates during the 4th quarter. Earnings were reduced from $166 million to $115 million in the Latin America region. In addition to the exchange rate impact, MetLife reported individual business losses of $106 million, after posting $380 million in the prior period. These losses can be attributed to increased amortization costs on acquisitions and capitalization investments, while their revenues declined due to the lowering of fees in response to poor market conditions.
Competition & Financial Standings
MetLife has not been the only insurance giant to struggle, as its largest competitors American International Group (AIG) as well as Prudential (PRU), are down drastically in the last 12 months. While MetLife has fallen nearly 55% percent from its 52 week high, both AIG and PRU are down 98% and 70% respectively. MetLife boasts one of the best financial balance sheets in its industry. It also had the best revenue growth in its S&P 500 Insurance sub sector, with a growth of 14.6% this past quarter.
MetLife possess an incredibly strong and diverse portfolio of investments, which contributed a net income of $1.3 billion. The entire portfolio is worth $322.5 billion, and is extremely well managed.
Despite a brutal year for the insurance industry, MetLife has a solid financial foundation that should allow then to grow rapidly out of this recession. They secured an additional $2.3 billion dollars through share sales in October, and will now be potential buyers in an industry that will most likely contract as the industry awaits a recovery. There is a very high probability that Met will attempt to buy some assets from a reeling AIG which is desperate for capital to pay back its government loans. However, Robert Henrikson has assured that he will not rush into any acquisition or merger until he has completed an exhaustive due diligence.
Another boost to the entire industry may come in the form of ease in regulation requirements. The American Council of Life Insurers ((ACL)I) petitioned to have its regulations changed; citing that the member companies were required to hold more than enough capital to cover losses and payouts, and the number should be lowered. If changed, this legislation could free up as much as $25-30 billion dollars in the industry. Players in the life insurance industry saw their shares jump nearly 20% last Wednesday at the hint that legislation may be changed.
C. Robert Henrikson, chairman, president & chief executive officer of MetLife, Inc stated:
In 2008, MetLife generated a strong, 11% increase in top line results in what is clearly the most challenging economic environment we have experienced in decades,” “MetLife’s capital strength, strong ratings and focus on the long-term will continue to set us apart as we move ahead in 2009. These attributes, along with our diversified businesses and investment portfolio, serve us well…
By exceeding their analysts’ predictions, MetLife entered the 2009 primed for a strong rise. MET is starting to see steady increases in their revenues from foreign countries, with strong growth in China and Japan. Their strong financials, backed by a large investment portfolio and free cash will prove them a top competitor in the industry, ready to expand via merger or acquisition. While exchange and interest rates remain their main concerns, due to fixed annuities, an increased mortality rate could also stifle MetLife’s future. However, all risks aside, it appears that MetLife has weathered the storm, and make a solid run.
Disclosure: The author is long MET.