Prudential Financial, Inc. (PRU)

PRU 
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Prudential Financial (PRU)

Q2 2011 Earnings Call

August 04, 2011 11:00 am ET

Executives

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

Charles Lowrey - Executive Vice President, Chief Operating Officer of US Businesses, Chief Executive Officer of Prudential Investment Management, President of Prudential Investment Management and Executive Vice President of Prudential Financial & Prudential Insurance

Mark Grier - Executive Vice President of Financial Management

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

Analysts

Jay Gelb - Barclays Capital

Thomas Gallagher - Crédit Suisse AG

Jeffrey Schuman - Keefe, Bruyette, & Woods, Inc.

John Nadel - Sterne Agee & Leach Inc.

Jamminder Bhullar - JP Morgan Chase & Co

Nigel Dally - Morgan Stanley

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

Christopher Giovanni - Goldman Sachs Group Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the second quarter 2011 earnings teleconference. [Operator Instructions] And as a reminder, this conference is being recorded. I'll now turn the conference over to Eric Durant, Head of Investor Relations. Please go ahead, sir.

Eric Durant

Thank you very much, Good morning. Thank you for joining our call. We look forward to spending a productive hour with you.

Before we begin, some housekeeping. 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 2011, which can be found on our website at www.investor.prudential.com.

In addition, in making our business -- 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 ultimately to 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 2 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.

Participants in this call from Prudential include John Strangfeld, CEO; Mark Grier, Vice Chairman; Rich Carbone, Chief Financial Officer; Peter Sayre, Controller and Principal Accounting Officer; Charlie Lowrey, Head of our U.S. businesses; and Ed Baird, Head of our international businesses.

John Strangfeld will kick things off with his presentation. John?

John Strangfeld

Thank you, Eric, and good morning, everyone. Thank you for joining us. We had strong results for the second quarter, both in earnings and on underlying fundamentals. As reported, our earnings per share nearly doubled from last year's second quarter based on adjusted operating income of the Financial Services business. In a moment, Rich and Mark will review the quarter with you more extensively.

In brief, our results reflect solid business performance virtually across the board. Market conditions were generally favorable over the last year, but strong fundamentals and good execution are driving our results more than favorable markets. I'll mention a few highlights. In individual annuities and retirement, account values reached record highs, $160 billion for annuities, $221 billion for retirement. In annuities, strong sales and net flows, reflecting the value proposition of our HD products, as well as our consistent presence in the market, have driven sustained growth of quarter results.

In retirement, our flows reflect strong sales and stable value wrap products, and current quarter sales also include 2 groundbreaking transactions in the emerging defined-benefit risk transfer market.

Our Asset Management business achieved a new high for Assets Under Management of $583 billion. Sustained growth in AUM is leading to a greater contribution from core fee-based earnings. International Insurance had exceptional sales of $737 million, up 76% from a year ago based on annualized new business premiums in constant dollars. This result includes sales from the acquired Star/Edison operations. Even without that contribution, international sales would still be 30% higher than a year ago. Organic growth, both in our Life Planner business and Gibraltar Life is producing higher earnings, and early contributions from Star/Edison are solid.

I'll wrap up with a few comments on return on equity, which we consider to be the most telling measure of financial performance and the yardstick we manage to above all others.

Our ROE in the first half is 11% based on annualized adjusted operating income for the Financial Services businesses. This compares to our aspiration of 13% to 14% by 2013. We believe that our aspiration is made possible by virtue of an attractive mix of high-quality and well-led businesses. In particular, I would like to highlight that there are 3 key elements to getting from where we are today to our 2013 aspiration. Number one is continued strong performance of our high ROE businesses, namely Asset Management, Annuities and International. Each of these businesses recorded outstanding results in the second quarter, as Rich and Mark will discuss in a moment.

Number two is successful integration of Star/Edison.

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