MetLife Inc. CEO Steven Kandarian is focusing on free cash flow as the key metric for his company after a surge in net income last year failed to boost the stock price.
“Nothing is more fundamental than cash,” Kandarian said in a letter Monday to shareholders of the largest U.S. life insurer. “Since the financial crisis, investors have shown increasing skepticism toward reported earnings for life insurers.”
Oversight from regulators and ratings firms can limit how much of a life insurer’s earnings can be distributed to shareholders. MetLife’s stock gained less than 1 percent as net income climbed more than 90 percent to $6.19 billion, and the operating return on equity was about 12 percent.
“I am less satisfied with MetLife’s level of free cash flow generation,” Kandarian said in the letter. “While the ratio of free cash flow to operating earnings has shown improvement, reaching 44 percent in 2014, it is still below the level we think is necessary to maximize shareholder value.”
Kandarian, 63, said in 2012 that he planned to lift free cash flow to half of earnings, from about 40 percent at the time. Monday he said the New York-based insurer will seek to increase the ratio to a range of 45 percent to 55 percent for 2015 to 2017. Free cash flow subtracts capital investment from operating cash flow.
MetLife’s push into fee-generating asset management operations may help meet Kandarian’s goals, Thomas Gallagher, an analyst at Credit Suisse Group AG, said in a research note published Monday before the letter.
“Met has rapidly built up its third-party asset management business, which is largely commercial real estate and private placements, to the $35 billion-plus level,” Gallagher wrote. “This is close to a 100 percent free cash flow business.”
MetLife announced $2 billion in share buybacks last year, its first since 2008, and raised its quarterly dividend 27 percent.
In 2013, MetLife consolidated its U.S. retail operation to Charlotte, where it operates a hub in Ballantyne. A spokesman said in December that the hub is close to its goal of employing 1,386 by 2015.
Charlotte and Mecklenburg County officials had approved roughly $3 million in incentives to lure the New York insurance company to Charlotte and under state incentives, the firm could receive as much as $87.2 million over 12 years. The incentives also require the company to create at least 2,098 jobs in North Carolina by Dec. 31, 2015.