Prudential Financial, Inc. (PRU)

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Prudential Financial (PRU)

Q1 2011 Earnings Call

May 05, 2011 11:00 am ET


Edward Baird - Chief Operating Officer and Executive Vice President of International Businesses

Eric Durant - Head of Investor

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

Mark Grier - Executive Vice President of Financial Management

John Strangfeld - Chairman, Chief Executive Officer, President and Member of Executive Committee


Andrew Kligerman - UBS Investment Bank

John Nadel - Sterne Agee & Leach Inc.

Randy Binner - FBR Capital Markets & Co.

Nigel Dally - Morgan Stanley

Suneet Kamath - Sanford C. Bernstein & Co., Inc.

Edward Spehar - BofA Merrill Lynch



Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2011 Earnings for John Strangfeld [Prudential Financial, Inc.] [Operator Instructions] And I would now like to turn the conference over to Mr. Eric Durant. Please go ahead.

Eric Durant

Thank you, Cynthia. Good morning. Thank you for joining our call. Today's presenters are indeed John Strangfeld, CEO; Rich Carbone, Chief Financial Officer, Mark Grier, Vice Chairman. Then joining John, Rich and Mark for our Q&A will be Charlie Lowrey, Head of our U.S. businesses; Ed Baird, Head of our international businesses; and Peter Sayre, Controller and Principal Accounting Officer.

Now this commercial. 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 first quarter of 2011, which can be found on our website at

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. Our earnings press release contains information about our definition of adjusted operating income. The comparable GAAP presentation and the reconciliation between the two for the 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. John?

John Strangfeld

Thank you, Eric. Hello, everyone. Thank you for joining us. We had a strong and eventful first quarter. Our earnings per share for the quarter increased 17% from last year's first quarter based on after-tax adjusted operating income of the Financial Services business. We produced an annualized ROE of 11.4% for the quarter on the same basis. GAAP book value per share reached $63.50, up 16% from a year ago. In a few moments, Rich and Mark will review the quarter with you in detail.

In brief, our financial results are solid and broadly based, and our sales and flows demonstrate excellent and continuing commercial momentum. In our Annuities business, our competitive position and expanding distribution have driven strong sales and flows, leading to substantial growth of business with attractive returns. In Asset Management, we are benefiting from higher fees driven by growth in Assets Under Management, as well as the absence of significant credit-related charges, which affected results a year ago.

In our U.S. Protection businesses, results were down modestly from last year, reflecting less favorable group disability claims experienced in the current quarter. Our international businesses are producing sustained organic growth, including an increasing contribution from Life Insurance Protection business sold through the bank channel at Gibraltar Life.

Current quarter results also include the first month of operations at the Star and Edison businesses we acquired in February. The addition of these companies will significantly strengthen our franchise in Japan, where we are already a market-leading farm life insurer. In spite of the earthquake and tsunami disaster in Japan, business integration is proceeding well, in line with expectations, and with no material surprises. We applaud our dedicated staff in Japan, as well as our associates in the U.S., who have kept us on track through this difficult period. Largely because of recent increases in Japanese and U.S. interest rates, our estimation of the earnings contribution over time of Star and Edison is modestly higher than our earlier expectations.

In April, we reached agreement to sell our Global Commodities business in a transaction that is expected to close later this year. When completed, this transaction will free for redeployment approximately $400 million in capital. Broadly, on the subject of capital, we are at a very strong position, with both capacity and flexibility in capital deployment. We are highly focused on capital management, and we recognize the importance of capital deployment in the achievement of our 2013 ROE aspiration of 13% to 14%. We look forward to a fulsome discussion of capital and capital management at our Investor Day next month.

And with that, I will turn it over to Rich.

Richard Carbone

Thanks, John and good morning, everyone. As you've just heard from John's remarks, and as you've seen from yesterday's release, this was a good quarter. Common stock earnings per share was $1.69 based on adjusted operating income, a 17% increase over the $1.45 from the prior year. The list of significant discrete items affecting current quarter results is fairly short and easy to digest.

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