Yahoo Finance Why Is MetLife (MET) Down 6.9% Since Last Earnings Report?
A month has gone by since the last earnings report for MetLife (MET). Shares have lost about 6.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is MetLife due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
MetLife Q1 Earnings Miss on Lower Investment Income
MetLife reported first-quarter 2023 adjusted operating earnings of $1.52 per share, which missed the Zacks Consensus Estimate of $1.85. The bottom line declined 25% year over year and significantly missed our guidance.
Adjusted operating revenues of MetLife amounted to $16,126 million, which decreased 7.7% year over year. The top line missed the consensus mark by 4.1% and our estimate of $16,306.6 million.
The weak first-quarter results were caused by reduced returns, lower investment income despite a high interest rate environment and rising expenses. Reduced profit levels from Asia and MetLife Holdings businesses were concerning. The negatives were partially offset by volume growth across some segments and improved contributions from the U.S., EMEA and Latin America businesses.
Behind the Headlines
Adjusted premiums, fees and other revenues, excluding pension risk transfer (PRT), were $11,541 million, up 3% year over year. Adjusted net investment income fell 8% year over year to $4,606 million in the quarter under review, primarily due to incurring variable investment loss stemming from decreased private equity returns.
Total expenses of $15,131 million jumped from $13,470 million a year ago, despite lower policyholder benefits and claims, primarily due to incurring market risk benefit remeasurement losses. The adjusted expense ratio, excluding total notable items related to adjusted other expenses and PRT, increased 50 basis points (bps) year over year to 20%.
Net income plunged 99% year over year to $14 million, due to net investment losses. Adjusted return on equity, excluding AOCI other than FCTA, deteriorated 440 bps year over year to 11.3%.
Segmental Performances
U.S.: The segment reported adjusted earnings of $707 million, which increased 7% year over year in the first quarter due to higher volume, recurring interest margins and favorable underwriting, partly offset by reduced variable investment income. However, it missed the Zacks Consensus Estimate by 15.2%. Adjusted premiums, fees and other revenues, excluding PRT of $6,718 million, rose 4% year over year.
Asia: Adjusted earnings in the segment amounted to $280 million, which fell 53% year over year in the quarter under review and missed the consensus mark by 25.6%, due to reduced variable investment income. Adjusted premiums, fees & other revenues declined 9% year over year to $1,794 million in the first quarter.
Latin America: Adjusted earnings of $215 million increased 59% from a year ago and beat the Zacks Consensus Estimate by 20.7%, due to volume growth, favorable underwriting and recurring investment margins, partially offset by reduced variable investment income. Adjusted premiums, fees & other revenues advanced 32% year over year to $1,372 million in the segment, due to growing sales.
EMEA: The segment’s adjusted earnings were $60 million, which increased 9% at reported basis and 30% at cc basis year over year in the first quarter, on the back of growing volumes and recurring interest margins. However, it marginally missed the consensus mark. Adjusted premiums, fees & other revenues of $581 million declined 3% year over year. On a cc basis, the same was up 5% year over year due to sales growth.
MetLife Holdings: Adjusted earnings in the segment slumped 55% year over year to $158 million due to decreased variable investment income. The reported figure also missed the Zacks Consensus Estimate by 39.5%. Adjusted premiums, fees & other revenues fell 8% year over year to $959 million in the quarter under review.
Corporate & Other: Adjusted loss of $236 million widened from the prior-year quarter’s loss of $105 million.
Financial Update (as of Mar 31, 2023)
MetLife exited the first quarter with cash and cash equivalents of $18,456 million, which decreased from $20,195 million at 2022-end. Total assets of $674.3 billion increased from $663.1 billion in first-quarter 2022 end.
Long-term debt totaled $14,622 million, marginally down from $14,647 million at 2022-end. It also had a short-term debt of $168 million. Total equity of $32,423 million increased from $30,125 million at 2022-end.
Capital Deployment Update
MetLife bought back shares worth $800 million during the first quarter and an additional $223 million in April.
Outlook
Earlier, the company stated that it expects pre-tax variable investment income to be around $2 billion for 2023. Corporate & Other adjusted losses were expected within $650-$750 million for the year. The effective tax rate was projected in the range of 22-24%. MET expects its MetLife Holdings’ adjusted premiums, fees and other revenues to decline 12-14% in 2023 and then by 6-8% per annum. It expects to generate adjusted earnings of $1-$1.2 billion in 2023 from this segment.
It stated that within three years, the company targets adjusted return on equity within 13-15%. It intends to keep free cash flows within the 65-75% range of adjusted earnings. Further, it is aiming at a direct expense ratio of 12.6%. In the near term, MET expects its group benefits’ adjusted premiums, fees and other revenues to grow 4-6% per annum.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
VGM Scores
Currently, MetLife has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, MetLife has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
MetLife is part of the Zacks Insurance - Multi line industry. Over the past month, Prudential (PRU), a stock from the same industry, has gained 1.3%. The company reported its results for the quarter ended March 2023 more than a month ago.
Prudential reported revenues of $15.1 billion in the last reported quarter, representing a year-over-year change of +10.6%. EPS of $2.66 for the same period compares with $3.17 a year ago.
Prudential is expected to post earnings of $3.09 per share for the current quarter, representing a year-over-year change of +77.6%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.8%.
Prudential has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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