Genworth Suffers on Mortgage Loss - Analyst Blog

Genworth Financial Incorporation (GNW) reported fourth-quarter 2010 operating loss of 28 cents, lagging the Zacks Consensus earnings estimate of 16 cents. Results were considerably lower than operating profit of 19 cents reported in fourth-quarter 2009. Operating loss was $135 million compared with operating income of $94 million in the year-ago period.

A substantially higher year-over-year loss at the U.S. Mortgage Insurance segment partially offset by better results at Retirement & Protection and at International resulted in the company's soft performance.

Net loss available to common shareholders was $161 million or 33 cents per share in the reported quarter compared with net income of $40 million or 8 cents available to common shareholders in the year-ago period. Net income in the reported quarter included investment losses of $26 million compared with an investment loss of $54 million in the prior-year period.

Full year 2010 operating income of 26 cents, lagged the Zacks Consensus Estimate earnings of 68 cents. Results compare unfavorably with 44 cents in 2009. Operating income was $126 million compared with $198 million in 2009.

Net income available to common shareholders in 2010 was $142 million or 29 cents per share, reversing the net loss of $460 million or $1.02 per share available to common shareholders in the year-ago period. Net income in the reported quarter included investment losses of $90 million and tax benefit of $106 million related to separation from the company's former parent.

Operational Performance

Genworth's total revenue improved 5.3% in the quarter to $2.59 billion from $2.46 billion in the prior-year quarter. Results surpassed the Zacks Consensus Estimate of $2.57 billion. An improvement in investment income as well as insurance and investment product fees largely drove the overall revenue climb.

2010 revenue was $10.09 billion, increased 11% from 2009. Results were slightly below the Zacks Consensus Estimate of $10.17 billion.

Premium revenue at Genworth declined 3.7% year over year to $1.47 billion in the quarter. 2010 premium revenue declined 2.7% year over year.

Net investment income increased 10% year over year to $863 million. For full year it increased 7.7% year over year to $3.3 billion. 

 

Segment Update

Retirement and Protection: Net operating income increased to $138 million in the quarter from $129 million in fourth-quarter 2009. Earnings improvement at Wealth Management and Retirement Income largely contributed to the growth.

2010 operating income improved 14% year over year to $485 million.

International: Net operating income improved to $117 million in the quarter from $101 million in fourth-quarter 2009. Improved profit from Mortgage Insurance business in Canada and Australia coupled with solid results from Lifestyle Protection business drove the overall improvement.

Operating income was $434 million in 2010, up 13% form 2009.

U.S. Mortgage Insurance: Operating loss widened to $352 million compared with a loss of $74 million in the prior-year quarter. Higher reserves, higher paid claims, a decline in loan modifications and continued aging trends in the delinquency inventory affected results negatively.

Operating loss widened to $580 million from a loss of $459 million in 2009.

Corporate and Other: Net operating loss was $38 million compared with an operating loss of $62 million in fourth-quarter 2009.

2010 operating loss was $213 million, wider from the loss of $152 million in 2009.

Financial Update

Cash, cash equivalents and invested assets of Genworth at the end of 2010 were $72.3 billion, higher than $69.2 billion at 2009 end.

Genworth's long-term borrowings increased to $4.95 billion at 2010 end from $3.64 million at 2009 end.

Our Take

We expect the elevated unemployment rate to continue pressuring the mortgage insurance business. Though the business is showing signs of improvement, the line is still experiencing losses. Additionally, the improvements in its other business lines are expected to be slow given the economy's sluggish recovery.

We maintain our Underperform recommendation on Genworth. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the shares over the near term.

Based in Richmond, Virginia, Genworth Financial offers a variety of products to customers in areas such as life insurance and lifestyle protection, long-term care insurance, annuities, asset management and mortgage insurance through financial intermediaries, advisors, independent distributors and sales specialists. The company competes with MetLife, Inc. (MET) and Prudential Financial, Inc. (PRU).

 
GENWORTH FINL (GNW): Free Stock Analysis Report
 
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PRUDENTIAL FINL (PRU): Free Stock Analysis Report
 
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