Key Takeaways From Prudential’s Q2 Earnings

by Trefis Team
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Prudential Financial (NYSE: PRU) reported mixed results for the second quarter as its revenues increased 10% year-over-year (y-o-y) to over $13 billion, driven by a nearly 23% surge in premiums and a 9% increase in net investment income. This also helped the company increase its adjusted operating earnings by 10% y-o-y to about $919 million, or $2.09 a share, in Q2 2017, which was below consensus estimates by nearly 61 cents.

Prudential’s stock, like those of other insurance majors, has risen dramatically in the last year (over 50%) on strong results in the last three quarters and rising interest rates. In the second quarter, Prudential’s operating income improved primarily due by higher investment income compensating for declining or flat premiums. However, the operating income for Prudential’s U.S. Life and Group Insurance declined in the quarter.

International Operations

Prudential’s international revenues grew 3% y-o-y to about $5.5 billion in Q2 2017, driven by growth in both Life Planner and Gibraltar operations. The company’s international sales grew by 14% in constant currency due to stable growth and better-than-expected underwriting margins. In terms of the bottom line, operating income from the international segment increased 2.5% y-o-y to $823 million, owing to a 7% rise in operating profits in the Gibraltar Life business.

U.S. Operations

In the U.S. market, Prudential’s Retirement Solutions and Investment Management division’s revenues increased by 38% to $5.7 billion, and operating income before taxes grew about 30% y-o-y to over $1.1 billion, driven primarily by strong top line and bottom line growth in the Individual Annuities, Retirement, and Asset Management businesses. In the Retirement business, adjusted operating income jumped 30% to $308 million driven by better investment results and lower expenses.

Prudential’s U.S. individual life and group insurance operating income declined by $267 million in the quarter, primarily due to a net charge of $653 million from updates to reserves and related items.

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