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U.S. life insurer, Prudential Financial Inc.’s ( PRU - Analyst Report ) core operating earnings for the second quarter of 2012 came in at $1.34 per share, much lower than the Zacks Consensus Estimate of $1.55. The results dwindled 14.7% on a year-over-year basis.
The lackluster earnings were primarily the outcome of higher claims experience and expense levels, partially offset by revenue growth and a lower share count.
The life insurer reported a net income (a GAAP measure of earnings) of $4.64 per share, compared with $1.58 per share recorded in the year-ago quarter. The increase was primarily due to $1.9 billion of charges related to foreign exchange movements, as well as a change in the market value of derivatives.
Total revenue reported by this second-biggest life insurer in the U.S. was $11.4 billion, up 13% year over year, attributable to higher premiums earned, policy charges and fee income, and net investment income. This was partly offset by lower asset management fees. The company’s revenues were ahead of the Zacks Consensus Estimate of $10.5 billion.
Premiums earned increased 24% year over year to $6.8 billion, while net investment income increased 1.5% to $2.6 billion.
Total benefits and expenses grew 17% year over year to $10.6 billion owing to higher insurance and annuity benefits, as well as mounted interest and other expenses.
The U.S. Retirement Solutions and Investment Management division, which houses Individual Annuities, Retirement and Asset Management, represents approximately 27% of the company’s total revenue. The segment recorded an operating income of $302 million, down 50% year over year.
Operating income at U.S. Individual Life and Group Insurance division declined 42% year over year to $107 million. The muted performance was mainly due to an adverse fluctuation in mortality experience in the U.S. Individual Life sub segment, driven by several large current-quarter claims.
The International Insurance and Investments division’s operating income increased 36% year over year to $681 million, attributable to higher contribution from both Gibraltar Life and Life Planners insurance operations.
Prudential’s Closed Block Business posted operating loss of $2 million, as against an operating gain of 13 million in the year-ago quarter. This segment consists of life insurance and annuity policies that were issued before the company went public in December 2001 and are still in force. Currently, Prudential has stopped offering such policies.
Prudential’s assets under management (AUM) increased 8.8% year over year to $961 billion as of March 31, 2012, reflecting strong institutional and retail flows.
Adjusted book value, which measures the net worth of a company, increased to $60.77 per share as of June 30, 2012, from $58.02 as of December 31, 2011.
Prudential spent $250 million for repurchasing 4.8 million shares during the quarter under review.
Though Prudential reported a laid-back second quarter, we remain upbeat about the company’s long-term performance. The company has been busy reshaping its underlying businesses by making significant acquisitions and shedding non-core businesses. Prudential carries a strong brand name and has been a niche player in the life insurance and retirement market.
Moreover, the changing demography of the U.S. population bodes well for the company’s retirement business.
Its International business has a strong market presence in Japan, a region with a huge aging population. The acquisition of Star and Edison in Japan in 2011 is expected to further strengthen its position in the market.
A solid balance sheet along with sound capital management policies makes the stock attractive to investors.
We maintain our Neutral recommendation on the shares of Prudential Financial. The stock also retains a Zacks #3 Rank, which translates into a short-term Hold rating.
Prudential’s close peer -- MetLife Inc. ( MET - Analyst Report ) -- also reported its second quarter on the same day. The company’s net operating earnings of $2.12 per share exceeded the Zacks Consensus estimate substantially and improved 59% year over year.
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