MET MetLife Inc

U.S. life insurer Prudential Financial Inc.’s (PRU) core operating earnings for the quarter came in at $1.97 per share, substantially higher than the Zacks Consensus Estimate of $1.76. Results were positively impacted, primarily by a three-fold increase in International earnings, led by Japan acquisitions earlier during the year. Full year 2011 earnings of $6.41 per share surpassed the Zacks Consensus Estimate of $6.25. 

On a GAAP basis, net income increased 2.8 times year over year to $1.26 per share, on the back of lower investments and derivative related losses.

Total revenue of the second biggest life insurer was $10.3 billion, up 28% year over year due to higher asset management fee, commissions and other income, net investment income as well as premiums. Premiums earned surged 43% to $5.7 billion, while net investment income upped 14.4% to $2.6 billion.

Full-year 2011 total revenues increased 29% year over year to $39.4 billion.

Total benefits and expenses increased 31% year over year to $9.0 billion, led by higher insurance and annuity benefits, interest and other expenses.

Segment Update

The U.S. Retirement Solutions and Investment Management division, which accounts for approximately 27% of the company’s total revenues, recorded an operating income of $688 million, up 10.3% year over year. The increase was the result of a higher contribution from the Individual Annuities and Asset Management sub-segment, partially offset by a decline in contribution from the Retirement sub-segment.

The U.S. Individual Life and Group Insurance division registered an operating income of $201 million, a slight uptick from $200 million in the prior-year quarter.  The lackluster result of the segment was mainly due to 20% lower contribution from the Group Insurance segment, which suffered owing to less favorable group disability claims.

The other sub-segment, U.S. Individual Life, made 11% higher contribution to operating income, benefiting from adjustments of net amortization of deferred policy acquisition costs and overall growth inuniversal life and term insurance business in force.

Operating income of the International Insurance and Investments division increased 18% year over year to $692 million, reflecting growth in the protection and retirement income security markets with expanding multiple channel distribution, along with the ongoing integration of the Star and Edison businesses, acquired in early 2011. 

Prudential’s Closed Block Business posted $119 million of operating income in contrast to an operating loss of $52 million in the year-ago quarter. This segment consists of life insurance and annuity policies that were issued before the company went public in December 2001 but are still in force. Prudential no longer offers these policies.

Assets under management improved 15% year over year to $901 billion, led by increased net new cash flows, partly offset by an overall deterioration in equity markets.

Adjusted book value, which measures the net worth of a company, increased to $66.63 as of December 31, 2011, up from $59.48 on December 31, 2010.

Key Events During 4Q

Prudential sold its real estate brokerage franchise and relocation services business in December 2011. The move clearly manifested the company’s efforts to reshape its business by divesting units which are beyond its core competencies. This would automatically help it to focus on areas in which it has a niche presence.

Similarly in October 2011, Prudential announced the sale of its stakes in a Mexican private pension-fund manager to Grupo Financiero Banorte SAB for approximately $200 million.

Our Take

Despite equity market disruptions, Prudential ended 2011 on a strong note. Prudential continued to invest its energies in reshaping its underlying businesses even in the face of challenging macro trends. A number of significant acquisitions and shedding off of non-core businesses was a step in this direction.

The company’s business restructuring was successful, as evident from the quarter’s stronger-than-expected numbers. Management remains on track to successfully integrate the recent acquisition, which we believe would significantly enhance its International earnings.   

A solid balance sheet along with sound capital management policies makes the stock favorite to investors.

We maintain our Neutral recommendation on the shares of Prudential Financial. The stock, however, retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

Peer Update

Prudential’s close peers MetLife Inc. (MET) and American International Group Inc. (AIG) are scheduled to release fourth quarter results on February 14^th and 23^rd respectively.

 
AMER INTL GRP (AIG): Free Stock Analysis Report
 
METLIFE INC (MET): Free Stock Analysis Report
 
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research