Flat Revenue Growth Results In Earnings Miss For Prudential

-11.48%
Downside
117
Market
104
Trefis
PRU: Prudential Financial logo
PRU
Prudential Financial

Prudential Financial (NYSE: PRU) reported soft second-quarter results as adjusted earnings per share of $3.01 missed expectations, albeit by a small margin. Moreover, the company’s stock has underperformed for the better part of this year as the price declined from around $116 at the start of the year to $94 in June. That said, the stock seems to be on a path of recovery, as it has been on an upward trend since the start of July and the earnings miss had little impact on the price. This is likely due to the fact that the company’s operational performance has actually improved over the year. While revenues remained fairly stable at $13.04 billion, adjusted EPS jumped by 44% year-over-year to $3.01. In terms of segment performance, U.S. Individual Solutions’ revenue increased by 38.6% year-over-year on the back of strong individual annuities sales. The U.S. Workplace Solutions did well but failed to maintain the levels that it achieved an year ago, and the International Insurance segment struggled due to slow growth in Japan.

We are positive about the company’s future outlook and maintain a $118 price estimate for Prudential, which is ahead of the current market price. Our interactive dashboard on Prudential’s Q2 earnings takeaways and outlook details our forecasts and estimates for the company. Below we discuss our expectations for the upcoming quarter.

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Retirement Business To Deliver High-Level Performance

Although Prudential is one of the leading companies in the PRT market and has over $65 billion in funded pension account values, it did not convert a single PRT transaction in the first quarter of the year. Looking at the $2.8 billion net flows in the second quarter, which includes $1 billion in PRT cases, this seems to be a blip in an otherwise strong trend of the company’s retirement business. Given that plan sponsors are getting increasingly interested in PRT transactions, we expect that Prudential’s expertise in such transactions will fetch high-level deposits for the upcoming quarter. More recently, the company secured a $923 million PRT case from Raytheon, which bodes well for the business. Meanwhile, financial wellness, an initiative that allows people to effectively manage their finances and protect themselves against risk, is starting to gain traction among employers and the workforce. Given the potential for growth in the retirement business and the competition, an important factor that can tip the scale in an insurer’s favor is customer engagement. This is where the financial wellness initiative could stand out.

Soft Results Of Individual Life Insurance Will Be Offset By Solid Individual Annuity Results

The decline in guaranteed universal life sales has resulted in soft results for the Individual Life business, and we expect the next quarter to be no different. However, efficient pricing will likely drive growth in HDI sales and should offset the aforementioned decline. Meanwhile, the company has been able to extract higher than expected returns from non-coupon investments. Given that PGIM, the company’s investment management division, has outperformed many of its peers of late, and that AUM for the division has been on an upward trajectory, we anticipate growth in net investment income and asset management fees.

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