Prudential Earnings Miss Estimates in Q3, Revenues Beat
U.S. life insurer Prudential Financial Inc. (PRU) reported third-quarter 2014 earnings of $2.20 per share, missing the Zacks Consensus Estimate of $2.41. Earnings declined 23.9% on a year-over-year basis.
Results suffered as higher expense eclipsed revenue growth during the quarter. Lower contribution from Individual Annuities, weaker earnings from the Individual Life segment and loss incurred by Group Insurance due to one-time charges resulted in the year-over-year decline.
Prudential Financial, Inc - Earnings Surprise | FindTheBest
Meanwhile, total revenue came in at $11.8 billion, up 9.1% year over year primarily due to higher premium, higher policy charges and fee income, net investment income and asset management fees and commissions. Reported revenues were also above the Zacks Consensus Estimate of $11.0 billion.
Total benefits and expenses were $10.4 billion in the quarter, 17.4% higher year over year. The increase was due to higher insurance and annuity benefits, interest credited to policyholders’ account balances, interest expenses and other expenses.
Quarterly Segment Update
U.S. Retirement Solutions and Investment Management, which contributes approximately 35% of Prudential’s total revenue, reported adjusted operating income of $823 million, down 33% year over year. The downside was due to lower contribution from Individual Annuities.
Adjusted operating income at U.S. Individual Life and Group Insurance decreased considerably to $24 million from $216 million in the year-ago quarter. The decline was due to lower contribution from the Individual Life segment coupled with loss incurred in the Group Insurance segment.
Adjusted operating income at International Insurance increased 8.6% year over year to $845 million led by improved income from Gibraltar operations, partly offset by lower contribution from Life Planner.
Corporate and Other Operations’ adjusted loss came in at $339 million, compared with a loss of $312 million recorded in the year-ago quarter.
Meanwhile, Prudential’s assets under management increased 7.8% year over year to $1.16 trillion as of Sep 30, 2014.
Financial Position
Adjusted book value per share, which reflects a company’s net worth, was $64.89 as of Sep 30, 2014, up 7.6% from the Dec 2013 level.
Operating return on equity which measures the company’s profitability decreased 120 basis points year over year to 16.9%.
During the third quarter, Prudential bought back 2.8 million shares of its common stock for $250 million.
Prudential presently carries a Zacks Rank #3 (Hold).
Our Take
Results of the second largest life insurer reflect persistently low interest rates and adverse change in foreign exchange rates. Though Prudential has taken hedge to protect itself against these macro risks, its results continue to suffer on account these. We, however, cannot overlook the company’s well-diversified business profile and extensive reach across different markets, which position it well to benefit from a rise in aging Americans. Moreover, the acquisition of the Hartford Individual Life Insurance business remains on track and would boost Prudential’s individual life insurance in the U.S.
Prudential’s presence in Japan, South Korea and Brazil is also expected to aid long-term growth.
Additionally, Prudential’s Retirement segment is set to largely benefit from its entry into the pension risk transfer business deals with General Motors Co., Verizon Communications Inc. and Visteon Corp.
Other Insurance Stocks
Other life insurance players like MetLife Inc.’s (MET), Lincoln National Corporation (LNC) and Protective Life Corp. (PL) reported favorable third-quarter earnings, beating the respective Zacks Consensus Estimate by 22 cents, 14 cents and 12 cents.
Read the Full Research Report on MET
Read the Full Research Report on LNC
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Read the Full Research Report on PL
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