This summary is based on the first quarter fiscal 2007 earnings call conducted by Prudential Financial, Inc. (PRU) on May 03, 2007.
Senior Vice President, Investor Relations: Eric Durant
Chairman and Chief Executive Officer: Arthur F. Ryan
Senior Vice President and Chief Financial Officer: Richard J. Carbone
Vice Chairman, Investment Division, and Insurance Division: John R. Strangfeld
Vice Chairman, Financial Management: Mark B. Grier
Key Investors Issues
- EPS were $2.18 per common share compared to $1.38 per common share a year ago.
- Net income came in at $1.025 billion compared to $675 million last year.
- Revenue was $6.71 billion, up 9.4% from $6.13 billion last year.
First Quarter Highlights
Annualized return on equity was 16.4% based on adjusted operating income.
- The company is continuing to use share repurchases to manage capital. Prudential repurchased 749 million of common stock under current Board authorization to repurchase $3 billion this calendar year.
- Excess capital remains an opportunity and a challenge for Prudential. The company estimates that excess capital, which includes untapped capacity to issue capital debt and hybrid securities as well as equity on the books, is in the range of $6 billion to $7 billion. This is a static measure. Share repurchases, common dividends and acquisitions reduce this total. The company estimates about 60% of after-tax adjusted operating income, increases excess capital.
The company reported common stock earnings per share for the Financial Services Business of $1.85 compared to $1.36 for the quarter a year ago.
These results are based on after-tax adjusted operating income, and in each case include certain market-sensitive or non-recurring items. In Asset Management business, income from market value changes in a proprietary fixed income fund contributed 3 cents per share.
Results for retail brokerage joint venture with Wachovia included in Financial Advisory segment benefited from strong equity syndication activity. The company estimates that this contributed 3 cents per share.
The International Investment segment reported adjusted operating income of $62 million, up $18 million from a year ago.
Current quarter results benefited from strong sales of mutual funds with front-end charges and income from an equity-related investment. These items were largely responsible for the increase in adjusted operating income. Results also included mark-to-market income from shares related to exchange memberships, amounting to $11 million and $15 million a year ago. The lower mark-to-market income was essentially offset by more favorable results from the segment’s trading operation.
- Individual life mortality was less favorable than expected range. The company did not include this along with special items, recognizing that claims fluctuate from one quarter to another.
In the year-ago quarter, retained costs in Financial Advisory segment amounted to about 25 cents per share, driven almost entirely by an increase in reserve for settlement costs related to market timing.
The company benefited about 8 cents per share in the same quarter from income on shares related to exchange memberships in two of businesses. The net effect of these items was a reduction of adjusted operating income for the year-ago quarter of about 17 cents.
Stripping out these items from both the current quarter and the year-ago quarter, EPS grew at 14%. The earnings per share growth reflect increases in adjusted operating income in each of three operating divisions, driven mainly by growth.
The Financial Advisory segment had adjusted operating income of $96 million compared to a loss of $66 million a year ago.
Current quarter results absorbed expenses of $14 million for retained obligations. The loss in the year-ago quarter included $176 million of expenses from retained obligations, almost entirely related to reserve for market timing.
Segment results a year ago benefited from $42 million of income, mainly from the receipt of shares related to New York Stock Exchange memberships. Stripping out the expenses for the retained obligations and the income last year from trading exchange shares, the Financial Advisory segment’s operations contributed pre-tax income of $110 million in current quarter results compared to $68 million a year ago. The $42 million increase tracks greater contribution from retail brokerage joint venture with Wachovia, which benefited from growth in commissions, fees and other revenues, partly due to the strong equity syndication activity in the quarter that Rich previously noted.
Corporate and other operations reported adjusted operating income of $12 million, down $14 million from a year ago, with lower contribution from investment income net of interest expense.
