Prudential Beats Q4 Estimates On Solid U.S. Retirement Business Results

by Trefis Team
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Prudential Financial (NYSE:PRU) reported solid results for the fourth quarter Wednesday, February 8th. The company’s revenue increased 1% year-over-year (y-o-y) to over $13.4 billion, driven by a 11% surge in net investment income and strength in its U.S. retirement solutions and investment management business. This also helped the company increase its adjusted operating earnings by about 22% y-o-y to $1.1 billion or $2.46 a share in Q4 2016, which beat analysts’ estimates of $2.32 a share.

Prudential’s stock, like those of other insurance majors, has risen dramatically in the last year (over 61%) on strong financial results in the third quarter, improving bond yields and expectations of a corporate tax cut and ease in regulatory environment under the Trump administration.

pru-21In the fourth quarter, Prudential’s net income declined by 61% y-o-y because of higher investment losses, which is reported as an adjustment figure. Total realized investment losses increased from $184 million in Q4 2015 to $824 million in Q4 2016.pru-22

International Operations

Prudential’s international revenues grew 12% y-o-y to over $5.2 billion in Q4 2016, driven by growth in both Life Planner and Gibraltar operations. Japan contributed a significant portion of this growth, as the total number of individual policies in force in Japan, excluding Gibraltar, increased over 6% y-o-y to about 3.5 million by the end of last quarter. In terms of bottom line, operating income from the international segment increased 2.3% y-o-y to $755 million owing to a 8% rise in operating profits in the Life Planner business partially offset by a 3% loss in the Gibraltar operations.

U.S. Operations

In the U.S. market, Prudential’s retirement solutions and investment management division’s revenues declined by 9% to $5.6 billion, but operating income before taxes grew over 24% y-o-y to over $964 million, driven primarily by strong top line and bottom line growth in the retirement business. In the retirement business, adjusted operating income jumped 89% to $318 million driven by better investment results, lower expenses and a $20 million benefit from settlement of legal matters.

In Prudential’s U.S. individual life and group insurance business – unlike the third quarter, when operating income declined by 24% – operating income improved by 44% y-o-y in the fourth quarter on strong performances in both the Individual Life and Group Insurance segments.

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