Why is MetLife (MET) up 1.2% since its last earnings report?

It’s been a month since MetLife’s (MET) last earnings report. Shares rose about 1.2% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is MetLife headed for a recession? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

MetLife’s first quarter earnings flatlined, y/y growth on lower expenses

MetLife reported first-quarter 2024 adjusted operating earnings of $1.83 per share, matching the Zacks Consensus Estimate. The financial result improved by 20.4% year on year.

MetLife’s adjusted operating revenues increased 5.5% year-over-year to $17 billion in the quarter. However, the top line missed the consensus by 3.8%.

Quarterly results were driven by falling costs and strong growth in the Asia, EMEA and Latin America segments. Strong, volatile investment income also contributed to the improvement. However, the weak contribution from the group benefits segment acted as partial compensation.

Behind the headlines

Adjusted contributions, fees, and other revenues (PFO), excluding pension risk transfer (PRT), were $12 billion. This number increased by 4% year-on-year.

Adjusted net investment income of $5.1 billion increased 10% year-over-year in the first quarter on rising interest rates and improving variable investment income.

Total costs fell 0.8% year over year to $15 billion due to lower dividends to policyholders. However, the adjusted expense ratio, excluding significant total items related to adjusted other expenses and PRT, deteriorated by 40 basis points (bps) year-over-year to 20.4% in the quarter.

Net income of $800 million rose sharply from $14 million in the year-ago period. Adjusted return on equity, excluding accumulated other comprehensive income (loss), other than foreign currency translation adjustments, improved 250 basis points year-over-year to 13.8%.

Inside MetLife Segments

Group benefits: Adjusted segment earnings declined 7% year-over-year to $284 million in the first quarter, missing the Zacks Consensus Estimate of $384 million. This indicator was influenced by reduced insurance margins in non-medical health insurance. However, adjusted PFO of $6.3 billion increased 5% year over year.

RIS: The segment posted adjusted earnings of $399 million, down 0.3% year-over-year but topping the consensus estimate of $383 million. A lower recurring interest margin combined with a less favorable insurance offer influenced the unit’s quarterly results. Adjusted PFO, excluding PRT, increased 25% year over year to $813 million, driven by structured settlement sales and growing longevity reinsurance in the UK.

The story continues

Asia: Adjusted earnings for the segment were $423 million, up 51% year-over-year and surpassing the Zacks Consensus Estimate of $352 million. This ratio was influenced by a favorable guarantee offer and better variable investment income. Adjusted PFO decreased 3% year-over-year to $1.7 billion in the quarter.

Latin America: The segment posted first-quarter adjusted earnings of $233 million, up 8% year-over-year on increased volumes and an increase in Chilean encaje returns. The figure topped the consensus estimate of $225 million. Adjusted PFO increased 9% year-over-year to $1.5 billion, attributable to solid sales and sustainability metrics.

EMEA: Adjusted segment earnings rose 28% year-over-year to $77 million in the quarter, higher than the Zacks Consensus Estimate of $61 million. The increase was due to favorable underwriting risk, higher recurring interest margins and volume growth. Adjusted PFO of $620 million increased 7% year-over-year on rising sales across the region.

MetLife holdings: Adjusted segment earnings were $159 million, up 1% year-over-year in the first quarter, but fell short of the consensus estimate of $164 million. The increase was due to higher variable investment income, offset by lost profits from reinsurance transactions. Adjusted PFO decreased 12% year over year to $841 million.

Corporate and other: The unit incurred an adjusted loss of $241 million in the quarter, which was higher than the prior-quarter loss of $236 million.

Financial update (as of March 31, 2024)

MetLife ended the first quarter with cash and cash equivalents of $19.8 billion, down 3.9% from year-end 2023 levels. Total assets of $677.6 billion decreased 1.5% from the end-2023 value.

Long-term debt was $16 billion, an increase of 2.7% compared to December 31, 2023. Short-term debt was $127 million.

Total equity of $28.8 billion decreased 4.8% from year-end 2023 levels.

Book value per share was $34.54 as of March 31, 2024, down 6% year-over-year.

Capital deployment update

MetLife repurchased approximately $1.2 billion worth of stock in the first quarter. In April 2024, it conducted additional repurchases worth approximately $330 million. The company announced a new $3 billion share repurchase plan, an increase on the existing $600 million remaining in April 2024.

Outlook for 2024

Management previously expected variable investment income to be approximately $1.5 billion in 2024. Adjusted corporate and other losses are estimated at between $750 million and $850 million. The effective tax rate is forecast to be around 24-26%. In 2024, MetLife Holdings’ adjusted PFO is expected to decline 13% to 15% year-over-year. The unit’s 2024 adjusted earnings are projected to be $700 million to $900 million.

Adjusted earnings in the Asia segment are expected to record record growth of approximately 20%, while the same growth in the EMEA unit is likely to remain in the range of $60-65 million for each quarter of 2024.

Short-term goals

Over the next three years, MetLife projects adjusted PFO in the group benefits area to growth in the range of 4-6%. The MetLife Holdings segment’s adjusted PFO is expected to grow between 4% and 6% annually, while Latin America and EMEA are expected to grow in the high single-digit and mid-single digit range, respectively. The mortality rate in Grupa Życie will probably remain between 84-89%.

MetLife’s goal is to achieve an adjusted return on equity of 13-15%. The free cash flow ratio is expected to remain in the range of 65-75% of adjusted earnings. The direct cost ratio is expected to be 12.3%.

How have estimates changed since then?

It turns out that estimate revisions have been trending upwards over the past month.

VGM results

At this point, MetLife’s average Growth Rating is C, although it lags slightly behind its Momentum Score of D. However, the stock is rated an A for Value, putting it in the top quintile of this investment strategy.

Overall, the stock has a Total VGM Score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show an upward trend, and the scale of these corrections looks promising. Notably, MetLife has a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

MetLife is part of the Zacks Insurance – Multi-line industry. Over the past month, Everest Group (EG), a company in the same industry, has gained 4.4%. More than a month ago, the company published its results for the quarter ended March 2024.

Everest Group reported revenues of $4.13 billion in the most recently reported quarter, representing a year-over-year change of +26%. EPS of $16.32 in the same period compared to $11.31 a year ago.

Everest Group is expected to report earnings per share of $17.21 for the current quarter, which would represent a year-over-year change of +13.2%. Over the past 30 days, the Zacks Consensus Estimate has moved -0.3%.

Everest Group carries a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM rating of B.

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