What To Expect From Prudential’s Q4 Results

Prudential Financial (NYSE:PRU) is scheduled to release its fourth quarter earnings on Wednesday, February 8th. In the first nine months of 2016, the company’s revenues increased by 8% year-over-year (y-o-y) owing to a 15% increase in premiums earned and higher income from asset management services, partially offset by lower policy charges and fee income. Despite the top line gains, Prudential’s post-tax adjusted operating income declined by about 20% y-o-y to $3 billion or $6.67 a share in the first three quarters of 2016, driven by lower margins in the Life Insurance and International insurance divisions.

In the upcoming Q4 results, we expect Prudential’s revenues to decrease in double digits and earnings to rise by about 20%, in line with consensus estimates compiled by Reuters.Factors Driving Results:

• Interest rates: Interest rates have remained low since last year, and economic uncertainty because of Britain’s exit from the EU has pushed government bond yields to extremely low levels, with German and Japanese bond yields entering into negative territory. In the first nine months of 2016, Prudential’s net investment income grew by 4.5%, even though its net investment income yield declined by 11 basis points to 3.72%. This was due to a slight decline in investment yield on both the fixed maturity securities as well as mortgage loans.The risk of persistent lower interest rates will definitely impact Prudential’s investment gains in Q4 2016 as well, considering fixed maturity securities have contributed almost 67% of Prudential’s net investment income in the last two years.
  
• Strong Yen: We expect the company’s results to be positively impacted by a stronger Japanese Yen, considering Japan contributes about 40-45% of the company’s international premiums. International markets contributed about 41% of Prudential’s revenues and 60% of its operating income in the first nine months of last year.

See our full analysis of Prudential

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