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Prudential Lags 4Q Estimates

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Prudential Financial Inc.’s (PRU - Free Report) core operating earnings for the fourth quarter of 2012 came in at $1.69 per share, lower than the Zacks Consensus Estimate of $1.74. Results were also down 6.0% on a year-over-year basis.                            

Full year 2012 operating income was $6.27 per share up 7.5% year over year and also above the Zacks Consensus Estimate of $6.18.

In the quarter under review, Prudential reported a net loss (a GAAP measure of earnings) of 48 cents per share against net income of $1.08 per share a year ago.

Total revenue reported was $46.1 billion, up more than three-fold year over year, attributable to higher premium, policy charges and fee income, net investment income, as well as higher asset management fees.

Total benefits and expenses increased to $45.11 billion from $8.97 billion in the year ago quarter.

Full year 2012 total revenue of $81.13 billion more than doubled from $38.93 billion in 2011.

Segment Update

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 reported adjusted operating income of $668 million, down 13% year over year.

Operating income at the U.S. Individual Life and Group Insurance division declined 52.0% year over year to $87 million.  The muted performance was mainly due to less favorable group life claims experience.

The International Insurance and Investments division’s operating income increased 29% year over year to $647 million, attributable to higher contribution from both Gibraltar Life and Life Planners insurance operations.    

Prudential’s assets under management as of Dec 31, 2012 increased 18% year over year to $1.060 trillion, rising from $901 billion at Dec 31, 2011.

Prudential’s Closed Block Business posted net loss of $18 million, compared with a net income of $123 million in the year-ago quarter.  This segment consists of life insurance and annuity policies that were issued before the company went public in Dec 2001 and are still in force. Currently however, Prudential has stopped offering such policies.

Adjusted book value, which measures the net worth of a company, decreased to $57.86 per share as of Dec 31, 2012, from $58.39 as of Dec 31, 2011.

Share Repurchase

During the year 2012, the company bought back 11.5 million shares at a total cost of $650 million.

During the fourth quarter the company completed some significant deals which included purchase of individual life business of The Hartford Financial Services Group, Inc. (HIG - Free Report) The company also undertook pension liability of General Motors Co. (GM - Free Report) and Verizon Communications Inc. (VZ - Free Report) .

Though the quarter’s results suffered from unfavorable foreign exchange movements, we expect the company to show a favorable performance over the long term, given its strong brand value and a significant presence in U.S as well as an expanding presence internationally.

Prudential’s stock retains a Zacks Rank #3 (Hold).

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