Prudential Financial Inc.’s(PRU) first quarter 2011 earnings of $1.69 per share topped the Zacks Consensus Estimate of $1.48 as well as the prior-year quarter’s earnings of $1.45 per share. Results were aided by solid performance in the company’s U.S. annuities and asset management businesses as well as its international insurance operations.
Prudential reported revenues of $9.2 billion, beating the Zacks Consensus Estimate of $8.2 billion. Also, on a year-over-year basis, revenues increased 28%, primarily due to higher asset management fees, commissions and other income, net investment income as well as higher premiums. Premiums earned surged 37% to $4.8 billion, while net investment income scaled up 11.0% to $2.3 billion.
Assets under management hiked 24% year over year to $859 billion, led by increased net new flows and an overall improvement in markets.
Adjusted book value, which measures the net asset value of a company, increased to $63.50 per share, up slightly by 0.6% from $63.11 at 2010 end.
The U.S. Retirement Solutions and Investment Management division, which houses Individual Annuities, Retirement, and Asset Management, recorded operating income of $618 million, a 25% year-over-year increase. The hike was attributable to 20% increase in Individual Annuities segment, led by a higher asset-based fees due to growth in variable annuity account values.
Also, a whopping 86% growth in operating income at the Retirement segment, helped by higher fees associated with growth in retirement account values, expanded the segment’s profit. The Retirement segment saw a modest 1.8% spike in operating income.
The U.S. Individual Life and Group Insurance division, which comprises Individual Life segment and Group Insurance segment, registered operating income of $136 million, down 5.6% year over year. The decline was a result of lower contribution (25.0%) from Group Insurance segment that suffered due to less favorable group disability claims experience.
However, a 5.5% increase in contribution from the Individual Life segment, which was benefited by improved mortality comparison, proved to be a tailwind to the segment.
The International Insurance and Investments division’s operating income surged 37% year over year to $672 million.
Prudential’s Closed Block Business posted $27 million of operating income as against the year-ago net income of $259 million. This segment consists of life insurance and annuity policies that were issued before the company went public in December 2001 but are still in force.
In February, Prudential completed the acquisition of two of the Japanese life operations of American International Group for $4.8 billion, mostly in cash. Since Japan is Prudential’s largest business base outside the U.S.and contributes about 40% to its revenues, the company will be able to consolidate its already strong footprint in the country.
Prudential’s results reflect that it is benefiting from strong annuity sales, higher investment income and asset management fees, led by a bounce in the equity markets. With its diverse business mix, resilient earnings, and a strong management team, the company is well positioned to enhance shareholder value.
Prudential’s solid balance sheet, global reach, superior franchise, strong credit ratings and expanding distribution with the addition of AIG Star/Edison will ballast it for a long time. Though, we are concerned about its potential investment losses, exposure to foreign exchange movement, and business link with the volatile equity and credit markets, we think the positives will outweigh the headwinds.
Prudential, the fourth leading life insurer only after American International Group Inc. (AIG), MetLife Inc. (MET) and New York Life Insurance Co. , carries a Zacks Rank # 3, which translates into a Hold recommendation over the short term (1-3 months). Also, considering Prudential’s fundamentals, we rate the stock Neutral over the long term.
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