Strong U.S. Retirement Growth Lifts Prudential’s Q1 Results

-11.19%
Downside
117
Market
104
Trefis
PRU: Prudential Financial logo
PRU
Prudential Financial

Prudential Financial (NYSE:PRU) reported strong earnings for the first quarter of 2015, posting net income of $2.1 billion compared to $1.3 billion a year ago. After-tax adjusted operating income, a non-GAAP metric used to measure operational performance, increased 14% year-over-year (y-o-y) to about $1.3 billion. [1] The U.S. retirement solutions business recorded healthy growth during the quarter, but international operations were a disappointment as FX headwinds adversely impacted earnings. In this note, we take a detailed look at the factors responsible for Prudential’s strong results in the first quarter.

We have a price estimate of $86 for Prudential’s stock, which is slightly higher than the current market price.

See our Complete Analysis of Prudential here

Relevant Articles
  1. Prudential Financial Stock To Post Mixed Results In Q4
  2. What To Expect From Prudential Financial Stock?
  3. Prudential Financial Stock To Edge Past The Consensus In Q2?
  4. Prudential Financial Stock Has Limited Potential
  5. Is Prudential Financial Stock Fairly Priced?
  6. Is Prudential Financial Stock Fairly Priced?

U.S. Retirement Business On A Roll

Prudential’s U.S. retirement solutions business consists of three sub-divisions: individual annuities, retirement and asset management. The company primarily earns revenue from fees charged on the basis of account values from these product lines, which are driven both by sales and market movements. Prudential is the seventh-largest seller of individual annuities in the U.S., with a market share of 4.6%, and the sixth-largest seller of variable annuities, with a market share of close to 7%. [2] Operating income for the individual annuities segment grew 36% over the prior year, which contributed to the overall 8% growth in the retirement solutions business. [3]

The retirement division offers retirement income products and services to employers in the U.S. During the first quarter, operating income from this segment decreased to $284 million from $364 million a year ago, driven by lower investment returns as well as higher expenses. However, as Prudential continues to make a slew of pension risk transfer deals, we expect the business to see some growth going forward.

Currency Fluctuations Hurt International Operations

Prudential has established operations in markets including Japan, Taiwan, Italy, Korea, Brazil, Argentina, Poland and Mexico. The company reported adjusted operating income of $834 million during the first quarter compared to $837 million a year ago. A sizable portion of the company’s international premiums come from operations in Japan, where earnings have been impacted by foreign currency fluctuations. The U.S. Dollar continued to strengthen against a host of international currencies, including the Japanese Yen, through the first three months of 2015. [4] However, excluding the effects of foreign currency fluctuations, there was 4% y-o-y increase in operating income from international operations. [5]

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

Notes:
  1. Prudential Financial, Inc. Announces First Quarter 2015 Results, Press Release, Prudential Investor Relations []
  2. U.S. Individual Annuities Sales, LIMRA []
  3. SEC 10-Q Filing, May 7 2015 []
  4. DOLLAR INDEX SPOT Exchange Rate, Bloomberg []
  5. 1Q15 Earnings Conference Call Presentation, Prudential Investor Relations []