Having limited its exposure to the volatile mortgage markets, MetLife Inc. says, it expects to hit analysts' earnings target this quarter, but the difficult market forces it to project 2008 earnings below expectations, executives said at the company's annual investor conference Monday.
The New York insurer said it expects to earn $5.90 to $6.20 per share on an operating basis next year. The average estimate of analysts surveyed by Thomson Financial is $6.26.
This quarter, MetLife said, it expects to earn $1.40 to $1.45 a share, putting earnings for the year at $6.04 to $6.09. The average estimate by analysts in Thomson Financial's survey was for earnings of $1.43 in the quarter and $6.08 for the year.
Metlife executives said the company expects operating profit to rise in the quarter and for the full year because of robust business performance and "unusually strong" investment results
William J. Wheeler, MetLife's chief financial officer, said the insurer plans to repurchase $2.2 billion of common stock next year. The company, which expects to have $3 billion in cash next year, will consider acquisitions, he said.
C. Robert Henrikson, MetLife's chairman and chief executive officer, said the company expects to post a 13% to 13.6% operating return on equity in 2008, down from 14.6% to 14.7% this year. MetLife has targeted 15% operating return on equity for 2010.
"We've been focused on shareholder value as long as you've known us, and our track record is great even despite the recent turmoil in the market," he said.
Mr. Henrikson said MetLife is able to remain positive despite the difficult market conditions because it has maintained its focus on risk management. "We are not an asset-gathering organization or a money management firm," he said. "We start with liabilities."
Steven A. Kandarian, the company's chief investment officer, said MetLife identified underwriting problems related to subprime collateralized debt obligations and structured investment vehicles in 2004 and "made an early call" to reduce exposure to BBB bonds.
The company has had $204 million of unrealized losses in the first 10 months of this year and $33 million of realized losses, "which is pretty good when considering the multibillion writeoffs at other institutions," he said.
Mr. Wheeler said MetLife expects revenue to rise this quarter and in 2008; he specified 9% growth next year, to $35.2 billion. This is below the double-digit growth investors have come to expect from MetLife in the past five years, he said, but remains strong considering market turmoil.
Mr. Kandarian said MetLife will reduce expenses next year from 30% of overall revenue to between 28% and 29%.
"We're not predicting a recession, but the chances of a recession are obviously higher than they were six months ago," he said. "If we sense the economy slows further from here, we'll take further corrective action."
Analysts said MetLife's expectations for next year remained positive, but realistic, despite the difficult environment. "It's in the company's nature to be overly conservative" with its guidance, Tamara Kravec, an analyst at Bank of America Corp. in New York, wrote in a note to investors.
Mr. Wheeler said MetLife will continue investing in its international businesses.
William J. Toppeta, the president of MetLife's international business, said international sales have grown 17% from a year earlier. MetLife sees a "huge opportunity" for growth globally, he said, and specifically in Asia and Latin America in the next three years.
Mr. Toppeta said sales will rise 19% annually for the next three years. "Our [international] growth will primarily be driven by four countries — Japan, Korea, Mexico, and Chile," he said. Next year MetLife's international business expects 22% sales growth, 14% growth in premiums and fees, and 21% profit growth, he said.
