A month has gone by since the last earnings report for MetLife (MET Quick QuoteMET - Free Report) . Shares have added about 6.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is MetLife due for a pullback? 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 Q4 Earnings Miss on High Costs & Weak EMEA Unit

MetLife reported fourth-quarter 2023 adjusted operating earnings of $1.93 per share, which fell short of the Zacks Consensus Estimate by 1%. The bottom line improved 21% year over year.

Adjusted operating revenues of MetLife climbed 21.5% year over year to $18.7 billion in the quarter under review. The top line outpaced the consensus mark by 3.6%.

The quarterly results suffered due to an elevated expense level, market risk benefit remeasurement losses and feeble contributions from the Europe, the Middle East and Africa ("EMEA") segment. Nevertheless, the downside was partly offset by improved investment returns, volume growth and solid performances of the Group Benefits and RIS businesses.

Behind the Headlines

Adjusted premiums, fees and other revenues (“PFOs”), excluding pension risk transfer (“PRT”), were $11.8 billion. The figure rose 8% year over year.

Adjusted net investment income of $5 billion grew 11% year over year in the fourth quarter on the back of increased returns from the private equity portfolio and asset growth.

Total expenses escalated 33.2% year over year to $18.1 billion due to higher policyholder benefits and claims, and interest credited to policyholder account balances. The adjusted expense ratio, excluding total notable items related to adjusted other expenses and PRT, improved 60 basis points (bps) year over year to 20.6% in the quarter under review.

Net income of $574 million dropped 63% year over year. Adjusted return on equity, excluding accumulated other comprehensive income (loss) other than foreign currency translation adjustments, improved 170 bps year over year to 13.8%.

Reorganization of Segments

To reflect management responsibility changes, MetLife’s segments underwent reorganization in the fourth quarter of 2023 and the company’s reportable segments were increased to six from five, namely, Group Benefits, Retirement and Income Solutions ("RIS"), Asia, Latin America, EMEA and MetLife Holdings. The Group Benefits and RIS businesses were earlier reported as the U.S. segment.

Inside MetLife’s Segments

Group Benefits: The segment’s adjusted earnings advanced 19% year over year to $466 million in the fourth quarter, higher than the Zacks Consensus Estimate of $417 million. The growth came on the back of favorable life underwriting margins and expanding volumes. Adjusted PFOs of $6 billion grew 3% year over year.

RIS: The segment recorded adjusted earnings of $421 million, which rose 10% year over year and outpaced the consensus mark of $414 million. Improved investment and underwriting margins drove the unit’s quarterly performance. Adjusted PFOs, excluding PRT, surged 75% year over year to $1 billion on the back of an increase in pension risk transfers. 

Asia: Adjusted earnings in the segment were $296 million, which improved 12% year over year but missed the Zacks Consensus estimate of $371 million. The metric was aided by improved recurring interest margins. Adjusted PFOs dipped 1% year over year to $1.7 billion in the quarter under review.

Latin America: The segment recorded adjusted earnings of $207 million in the fourth quarter, which advanced 13% year over year on the back of increased volumes and an increase in Chilean encaje returns. However, the figure lagged the consensus mark of $214 million. Adjusted PFOs rose 29% year over year to $1.5 billion, attributable to solid sales and persistency rates.

EMEA: Adjusted earnings of the segment declined 27% year over year to $47 million in the quarter under review, lower than the Zacks Consensus Estimate of $67 million. The decrease was due to the incidence of an unfavorable tax charge compared with a favorable tax benefit in the year-ago quarter and less favorable underwriting margins. Adjusted PFOs of $595 million grew 5% year over year on the back of growing sales across the region.

MetLife Holdings: The segment’s adjusted earnings were $156 million, which fell 15% year over year in the fourth quarter and lagged the consensus mark of $188 million. The decline was due to foregone earnings, which stemmed from the reinsurance transaction that was concluded in November 2023. Adjusted PFOs slipped 11% year over year to $901 million.

Corporate & Other: The unit incurred an adjusted loss of $232 million in the quarter under review, wider than the prior-year quarter’s loss of $210 million.

Financial Update (as of Dec 31, 2023)

MetLife exited the fourth quarter with cash and cash equivalents of $20.6 billion, which improved 2.2% from the 2022-end level. Total assets of $687.6 billion increased 3.7% from the figure at 2022 end.

Long-term debt totaled $15.5 billion, up 6.2% from the figure as of Dec 31, 2022. Short-term debt amounted to $119 million.  

Total equity of $30.3 billion inched up 0.4% from the 2022-end level.

MetLife generated net cash from operations of $4.2 billion for 2023, which tumbled 4.5% from the 2022 figure. Free cash flows were recorded at $3.5 billion in 2023, down 32.7% year over year.

Book value per share was $35.85 as of Dec 31, 2023, which advanced 7% year over year.

Capital Deployment Update

MetLife bought back shares worth around $900 million during the fourth quarter. It conducted additional repurchases of roughly $500 million in January 2024.

Full-Year Update

Adjusted earnings per share of MetLife were $7.33 for 2023, which increased 4% from the 2022 figure. Adjusted revenues slipped 3.5% year over year to $71.7 billion.

Adjusted PFOs, excluding PRT, of $46.6 billion improved 6% year over year. However, net income plunged 73% year over year to $1.4 billion in 2023.

2024 Outlook

Management anticipates variable investment income to be around $1.5 billion for 2024. Corporate & Other adjusted losses are estimated to be between $750 million and $850 million. The effective tax rate is projected within 24-26%. MetLife Holdings’ adjusted PFOs are expected to witness year-over-year decline of 13-15% in 2024. The unit’s adjusted earnings are forecasted within $700-$900 million in 2024.

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

Near-Term Targets

Over the next three years, MetLife projects adjusted PFOs in the Group Benefits business to rise in the range of 4-6%. Adjusted PFOs of the MetLife Holdings segment are anticipated to increase within 4-6% per year, while the same in the Latin America and EMEA units are forecasted to witness high-single-digit and mid-single-digit growth, respectively. The Group Life mortality ratio is likely to stay within 84-89%.

MetLife aims to achieve an adjusted return on equity within 13-15%. It is expected to keep the free cash flow ratio within the 65-75% range of adjusted earnings. The direct expense ratio is targeted to be 12.3%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, MetLife has a subpar Growth Score of D, 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 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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.