Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



The Gaping Hole in MetLife Inc.'s Upcoming Earnings Report

Source: MET website

What may be most notable about MetLife's (NYSE: MET  ) upcoming earnings report is what's not there.

If earnings per share and EPS guidance are the first things that you look for in an earnings report, then you have plenty of company among investors. But like Fleetwood Mac, MetLife wants to go its own way and, in bucking tradition, help investors put more focus on the long term.

Guiding light
Though the insurer will continue to provide actual EPS results, as of its December 2013 outlook call it won't be providing any forward EPS guidance. With MetLife's business in a period of rebalancing, CEO Steven Kandarian thinks that "EPS guidance no longer makes sense." Instead, the company wants investors to rely on other metrics that MetLife leadership thinks provide a more comprehensive view of its financial progress toward long-term goals.

The exclusion of EPS guidance isn't abnormal for a financial firm, since the complexities of such companies can hardly be comprehended through the baseline metric. Though not exactly the same thing, American International Group  (NYSE: AIG  ) watched its stock dip after telling investors that it would no longer provide guidance on its "aspirational" goals during its last earnings conference call. Perhaps the fact that MetLife made this announcement prior to reporting earnings will save its stock from a similar fate as AIG's.

In light of MetLife's decision to forgo future EPS guidance, investors may need some help figuring out the best metrics to measure the insurer's performance each quarter.

1. Revenue
MetLife has been a key insurance provider in the US for a long time, but the insurer is still looking to grow its business through new product offerings and expansion opportunities. Especially in its emerging markets, investors should keep tabs of how revenue growth fares over the next few quarters.

The company completed an acquisition of Provida, Chile's largest pension provider, during the fourth quarter. Latin America remains a huge growth opportunity for the insurer, and the strategic acquisition of Provida may help boost its potential.

2. Combined ratio
Of course, every insurer should be measured by its combined ratio. The number provides investors with a look at how insurance losses and operating expenses are managed, with declines in the ratio leading to higher profitability.

As discussed in its December outlook presentation, MetLife estimates that a 1% decline in its property and casualty combined ratio equates to a $10 million improvement in operating earnings. That's big incentive to improve the efficiency of its P&C operations.

Based on the company's first three quarters of 2013, the P&C ratio stood at 97%. And while the result does fall within the company's target range of 94% to 98%, it was near the top of the range and can be improved upon. Rival The Hartford (NYSE: HIG  )  recently reported a P&C combined ratio of 93%, with a target of 90% to 92% for 2014. The Traveler's Companies (NYSE: TRV  )  reported a combined ratio of 89% for its personal P&C policies.

Source: MET website

3. Return on equity
One of the key trends that the insurance companies have been directing investors toward is the continued improvement of returns on equity. Both MetLife and retirement solutions provider ING U.S. (NYSE: VOYA  ) have set very aggressive ROE goals for the coming years. Both wish to achieve an elevated ROE by 2016, with ING U.S. stating a 12% to 13% goal, and MetLife going further with 12% to 14%.

MetLife has made a concerted effort to cut expenses and improve efficiency, so increased revenues should flow more freely to the bottom line -- helping the company in its pursuit of higher ROE.

More than three
Of course, the information provided by the insurance company is sure to include more metrics than the three listed above. Good ol' EPS will be among those results -- the company just won't give you future targets.

Since earnings season is such an important time for investors to take stock of how their portfolios are performing, be sure to focus on the right numbers that will help you achieve long-term goals. That's some good advice that you can take away from MetLife's decision to change its focus during earnings reports.

Warren Buffett's investing wisdom
You can learn a lot about investing from company decisions, like the one made by MetLife. But some of the best advice comes from the guys that invest for a living.Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2835126, ~/Articles/ArticleHandler.aspx, 9/1/2015 10:18:30 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Jessica Alling

Contributing writer for covering the financial sector with an emphasis on the insurance industry.

Today's Market

updated Moments ago Sponsored by:
DOW 16,161.91 -366.12 -2.22%
S&P 500 1,928.86 -43.32 -2.20%
NASD 4,690.26 -86.25 -1.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 10:03 AM
AIG $58.71 Down -1.63 -2.70%
American Internati… CAPS Rating: ****
HIG $44.97 Down -0.98 -2.13%
Hartford Financial… CAPS Rating: ****
MET $48.35 Down -1.75 -3.49%
MetLife, Inc. CAPS Rating: ****
TRV $97.72 Down -1.83 -1.84%
The Travelers Comp… CAPS Rating: ****
VOYA $41.84 Down -1.24 -2.88%
Voya Financial CAPS Rating: *****