Prudential Beats, Ups Guidance

Prudential Financial Inc.’s (PRU - Snapshot Report) third-quarter earnings of $1.59 per share was well ahead of the Zacks Consensus Estimate of $1.33. Results also topped prior-year period’s earnings of $1.02 per share. The upside was driven primarily by strong annuity sales and market appreciation.
 
Prudential raised its guidance for the full fiscal 2009, based on its earning’s strength and current financial market conditions, including equity market levels, interest rates and credit spread. The company now expects earnings of $5.40 to $5.60 per share, elevated from the earlier range of $5.00 to $5.20 per share.
 
Net income for the Financial Services Businesses attributable to Prudential Financial Inc. was $1.09 billion or $2.35 per common share, compared to a net loss of $118 million 25 cents a share in the year-ago quarter. The company’s outstanding shares increased 9% year over year due to its stock offering in June.
 
Prudential’s U.S. Retirement Solutions and Investment Management segment posted a strong performance in the quarter. Adjusted operating earnings increased to $314 million, compared to a loss of $182 million in the year-ago quarter, driven by outstanding sales performance of Individual annuity business. Gross sales increased to $5.9 billion from $2.5 billion reported a year ago.
 
Adjusted operating earnings at U.S. Individual Life and Group Insurance segment came in at $307 million, down from $339 million a year ago. The downside was due to lower results of the group insurance business.
 
The International Insurance and Investments segment reported adjusted operating income of $513 million, up from $497 million earned in the prior-year period.
 
Assets under management increased to $641 billion at Sept 30, 2009 from $580 billion at June 30, 2009 and $558 billion at Dec 31, 2008.
 
Prudential’s Closed Block business includes in-force life insurance and annuity policies that were issued prior to the company going public in December 2001. This business reported net losses attributable to Prudential Financial Inc. of $8 million, compared with a loss of $58 million in the year-ago period. Prudential’s Class B stock reflects the performance of its Closed Block Business, which is not traded on any exchange.
 
Consolidated quarterly net income, including the results of both the Financial Services Businesses and the Closed Block Business, was $1.082 billion compared to a net loss of $176 million reported a year-ago.
 
Gross unrealized losses on general account fixed maturity investments of the Financial Services Businesses were $4.8 billion at Sept 30, 2009, significantly down from $11.3 billion at Dec 31, 2008.
 
Net unrealized gains were $979 million at Sept 30, 2009, compared to net unrealized losses of $6.6 billion at Dec 31, 2008. The company experienced pretax realized investment losses of $234 million, primarily reflecting losses from impairments and sales of credit-impaired investments. This was partially offset by increases in market value of certain investments in Europe.
 
Prudential’s products are very much sensitive to equity and credit market volatility. With the recent recovery in the market, the company was able to outperform in the reported quarter. We think the company will be able to maintain or improve its results in the upcoming quarters with a slow but gradual recovery of the overall economy.