Genworth Jumps Most Since 2009 as Mortgage Unit Fuels Profit

  • Net income is $172 million, earnings beat analyst estimates
  • Firm is closer to operational stability, BTIG’s Palmer says

Genworth Financial Inc. posted its biggest intraday gain since 2009 after reporting a second-straight quarterly profit as Chief Executive Officer Tom McInerney reshapes the insurer to rebound from losses on long-term care coverage.

The insurer rose 80 cents, or 29 percent, to $3.55 at 12:03 p.m. in New York, narrowing its loss for the year to about 5 percent. Genworth reported Tuesday that net income in the three months ended June 30 was $172 million, compared with a loss of $193 million during the same period a year earlier. Operating profit, which excludes some investment results, was 25 cents a share, beating by 5 cents the average estimate of seven analysts surveyed by Bloomberg.

McInerney has been selling European units to help pay down debt after posting a $1.24 billion loss in 2014 on higher-than-expected costs for long-term care insurance, which pays for home health aides and nursing home stays. The company benefited in the second quarter from a gain on the sale of Treasury Inflation Protected Securities and improved results in the U.S. unit that backs home loans.

“We were pleased with our overall results,” McInerney said Wednesday in a phone interview. As mortgage policies written around the financial crisis roll off, “that should provide good momentum for growth in the earnings of the U.S. mortgage insurance business. I would say that’s clearly one of our strongest businesses and it had an excellent second quarter.”

Low Expectations

The insurer was cut to junk by S&P Global Ratings in 2014, and was removed from the S&P 500 Index last year amid a stock plunge. McInerney halted sales of traditional life policies and fixed annuities in February. That’s increased reliance on U.S. mortgage insurance, where second-quarter profit climbed 24 percent to $61 million.

Genworth “likely moved a step closer to the re-establishment of the operational stability across its franchise that is a prerequisite for the successful restructuring of the company,” Mark Palmer, an analyst at BTIG, said Wednesday in a note. After disappointing investors in several prior periods, Genworth cleared the “low-expectations bar with a strong quarterly report highlighted by an earnings beat, strong performances from its U.S. and Canadian mortgage insurance units, and a display of steadiness from its troubled long-term care” unit.

Australia Dividends

The company’s Australian mortgage insurer posted a slump in profit during the second quarter amid higher delinquencies especially from commodity-dependent regions including Queensland and Western Australia. Genworth has been cutting its stake in that operation in recent years to help raise capital. A further divestiture doesn’t make sense right now because of that operation’s stock slump and its benefits to the parent company, the CEO said.

“Because of the cash dividends and share repurchase programs that we’ve had in place in Australia, we’re getting more cash flow through those mechanisms than we would get if we sold shares at what we think is somewhat at the bottom of the cycle,” McInerney said Wednesday. “But we continue to look at that and that could change. And down the road, if we see that selling the shares is more beneficial to Genworth, to the parent, we might look to do that.”

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