Prudential Financial Q2 2010 Earnings Call Transcript

Prudential Financial Q2 2010 Earnings Call Transcript
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Prudential Financial (PRU)

Q2 2010 Earnings Call

August 05, 2010 11:00 am ET

Executives

Eric Durant - Head of Investor

Richard Carbone - Chief Financial Officer, Executive Vice President and Chief Financial Officer of Prudential Insurance

Compare to:
Previous Statements by PRU
» Prudential Financial Q1 2010 Earnings Call Transcript
» Prudential Financial, Inc. Q4 2009 Earnings Call Transcript
» Prudential Financial Q3 2009 Earnings Call Transcript

Bernard Winograd - Chief Operating Officer of U S, Executive Vice President and Executive Vice President of Prudential Financial & Prudential Insurance

Mark Grier - Executive Vice President of Financial Management

John Strangfeld - Chairman, Chief Executive Officer and President

Analysts

Thomas Gallagher - Crédit Suisse AG

Andrew Kligerman - UBS Investment Bank

John Nadel - Sterne Agee & Leach Inc.

Suneet Kamath - Bernstein Research

Jamminder Bhullar - JP Morgan Chase & Co

Nigel Dally - Morgan Stanley

A. Mark Finkelstein - Macquarie Research

Edward Spehar - BofA Merrill Lynch

Presentation

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Prudential Second Quarter 2010 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Mr. Eric Durant. Please go ahead.

Eric Durant

Thank you very much, Cynthia. In order to help you to understand Prudential Financial, we will make some forward-looking statements in the following presentation. It is possible that actual results may differ materially from the predictions we make today. Additional information regarding factors that could cause such a difference appears in the section titled Forward-Looking Statements and Non-GAAP Measures of our earnings press release for the second quarter of 2010, which can be found on our website at www.investor.prudential.com.

In addition, in managing our businesses, we use a non-GAAP measure we call adjusted operating income to measure the performance of our Financial Services businesses. Adjusted operating income excludes net investment gains and losses as adjusted, and related charges and adjustments as well as results from divested businesses. Adjusted operating income also excludes recorded changes in asset values that are expected to ultimately accrue to contract holders and recorded changes in contract holder liabilities resulting from changes in related asset values.

The comparable GAAP presentation and the reconciliation between the two for the second quarter are set out in our earnings press release on our website. Additional historical information relating to the company's financial performance is also located on our website.

Well, with that behind us, thank you very much for joining us. John Strangfeld, Rich Carbone and Mark Grier have some prepared comments. And then we will welcome your questions. John?

John Strangfeld

Thank you, Eric. Good morning, everyone. Thanks for joining us. I'll be brief.

Our earnings performance in the second quarter continued to be solid. Based on adjusted operating income, earnings per share were $1.51. This is down from last year's result, which reflected a greater benefit from items such as DAC and reserve unlockings that are largely market-driven. Taking these items out of both the current year and year-ago’s quarters, would produce an EPS increase of about 11%.

We achieved an ROE of 11% for both the second quarter and the first half, based on annualized after-tax adjusted operating income of the Financial Services businesses. Excluding the impact of market-driven and other discrete items, ROE would be roughly 10%.

Our all-in measures were also strong this quarter. Net income was $798 million or $1.70 per share. Our investment portfolio is performing well. And our general account fixed maturities are in a $5.8 billion net unrealized gain position at the end of the quarter.

Our GAAP book value per share reached nearly $60 at the end of the quarter, roughly 50% higher than a year ago. And excluding the impact of unrealized gains and losses on investments and pension and post-retirement benefits, book value increased by $4.3 billion or 19%.

Most importantly, our business momentum continues apace, as is demonstrated by strong flows and sales in many of our businesses. Sales in individual annuities remained exceptionally robust. Full Service Retirement recorded its 11th consecutive quarter of net additions. Our Asset Management business continues to enjoy extraordinary net flows in both institutional and retail AUM.

And finally, International Insurance sales again reached a new high based on constant dollars. This success reflects our high-quality products, expanding distribution, financial strength and strong leadership across our businesses.

We are focused on adding high-quality business that can contribute appropriate returns over the market cycles. We will also consider acquisitions, but will evaluate opportunities with our customary care.

To sum up, our financial results are solid. Sales and flows continue to be very strong. Our businesses are competitive in their markets, well led and well positioned for the future. We like our overall balance and mix of businesses. We would like to do acquisitions, but we don't need to do them to change our business mix or to address a problem. As we've said before, we view M&A as like to do, not have to do. Now Rich and Mark will take you through the second quarter. And then we welcome your questions. Rich?

Richard Carbone

Thanks, John, and good morning, everyone. As you've seen from yesterday’s release and as you’ve just heard from John, we reported common stock earnings per share of $1.51 for the second quarter, and that's, of course, based on adjusted operating income for the Financial Services businesses. This compares to $1.87 per share in the year-ago quarter. ROE was roughly 11% for both the second quarter and the first half of the year. And that is, of course, based on adjusted operating incomes.

Let me start with some high-level comments on the current quarter. We're benefiting from account value growth in our Annuity Retirement businesses, driven by strong sales and net flows as well as cumulative market value increases over the past year. In our Asset Management business, credit-related charges have declined, with commercial real estate value showing signs of improvement. And we are benefiting from higher Asset Management fees driven by strong growth in our assets under management. Lower results from our U.S. Protection business were driven by the equity market decline in the quarter and less favorable underwriting in Group Insurance. Our international businesses are continuing to perform well, and International Insurance sales are benefiting from our expanded distribution platform that Mark will discuss later on.

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