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Why Is Prudential (PRU) Down 1.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Prudential (PRU). Shares have lost about 1.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Prudential due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Prudential Q2 Earnings Miss Estimates, Revenues Beat

Prudential Financial, Inc.’s second-quarter 2022 operating net income of $1.74 per share missed the Zacks Consensus Estimate by 33.6%. The bottom line decreased 51.7% year over year.

Prudential Financial's results reflect poor performance of Prudential Global Investment Management (PGIM), U.S. Businesses and International businesses.

Behind the Headlines

Total revenues of $13.8 billion increased 9.2% year over year on higher premiums, policy charges and fee income, asset management fees, commissions and other income. The top line beat the Zacks Consensus Estimate by about 9.7%.
Total benefits and expenses of $12.9 billion were up 19.6% year over year for the quarter. The increase in expenses was mainly attributable to higher insurance and annuity benefits and general and administrative expenses. The figure, however, was higher than our estimate of $11.4 billion.

Quarterly Segment Update

PGIM reported adjusted operating income of $206 million, which decreased 34.6% year over year. This decrease reflects lower Other Related Revenues, due to lower seed and co-investment income and asset management fees.

U.S. Businesses’ adjusted operating income was $370 million, down 64.7% from the year-ago quarter. This decrease includes an unfavorable comparative impact from the annual assumption update and other refinements of $1.4 billion but a gain on the sale of a block of legacy variable annuities of $852 million. Excluding these items, the current-quarter results primarily reflect lower net investment spread results and lower net fee income. It was partially offset by a gain on a strategic investment and more favorable underwriting results.

Assurance IQ incurred adjusted operating loss of $61 million, wider than a loss of $38 million in the year-ago quarter. This higher loss includes an unfavorable impact from the annual assumption update and other refinements of $17 million in the current quarter. Excluding this item, current-quarter results primarily reflected lower revenues, partially offset by lower expenses.

International Businesses delivered adjusted operating income of $555 million, down 30.9% from the year-earlier period. This decrease reflects an unfavorable comparative impact from the annual assumption update and other refinements of $17 million. Excluding this item, current-quarter results primarily reflect lower earnings from joint venture investments, lower net investment spread results, and less favorable underwriting results, partially offset by business growth.

Corporate and Other Operations incurred adjusted operating loss of $259 million, narrower than $336 million loss a year ago. This lower loss includes an unfavorable comparative impact from the annual assumption update and other refinements of $1 million.

Share Repurchase Update

Prudential returned capital worth $832 million in the quarter, including $375 million of share repurchases and $457 million of dividends. Dividends paid were $1.20 per share, representing a 5% yield on adjusted book value.

Financial Update

Cash and cash equivalents of $14.3 billion at quarter-end decreased 5.2% year over year. The figure, however, was higher than our estimate of $12.8 billion.
Debt balance totaled $20.2 billion as of Jun 30, 2022, up 4.3% from the 2021-end level. As of Jun 30, 2022, Prudential’s assets under management decreased 18.5% year over year to $1.410 trillion.

Adjusted book value per common share — a measure of the company’s net worth — came in at $104.19 as of Jun 30, 2022, down 0.2% year over year. Operating return on average equity was 6.6% for the second quarter, contracting 760 basis points year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Prudential has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Prudential has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Prudential is part of the Zacks Insurance - Multi line industry. Over the past month, Enact Holdings, Inc. (ACT), a stock from the same industry, has gained 1.3%. The company reported its results for the quarter ended June 2022 more than a month ago.

Enact Holdings, Inc. reported revenues of $273.54 million in the last reported quarter, representing a year-over-year change of


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