Prudential Financial ( PRU ) is scheduled to release its third quarter earnings on Wednesday, November 2. In the first half of 2016, the company's revenues declined by 5% year-over-year (y-o-y) owing to an 8% decline in premiums earned, lower policy charges and fee income as well as lower income from asset management services. Total realized investment gains, reported as an adjustment figure in the financial results, declined by 48% y-o-y to $698 million in the first six months of the year. The aforementioned factors resulted in the company's post-tax adjusted operating income declining by about 31% y-o-y to $1.8 billion or $4.02 a share in the first half of 2016, much below consensus estimates.
In the upcoming Q3 results, we expect Prudential's revenues to increase in mid single digits and earnings to decline in double digits, in line with consensus estimates compiled by Reuters.
Factors Driving Results:
- Interest rates: Interest rates have remained low this year, and economic uncertainty because of Britain's exit from the EU has pushed government bond yields to extremely low levels, with German and Japanese bond yields entering into negative territory. The risk of persistent lower interest rates will definitely impact Prudential's investment gains in Q3 2016 as well, considering fixed maturity securities have contributed almost 67% of Prudential's net investment income in the last two years.
- Strong Yen : We expect the company's results to be positively impacted by a stronger Japanese Yen, considering Japan contributes about 40-45% of the company's international premiums. International markets contributed about 45% of Prudential's revenues and 66% of its operating income in the first six months this year.
See our full analysis of Prudential
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