Prudential beats the street, despite Q3 loss of $802M

Prudential Financial handily beat the street and reported better than expected third quarter earnings, showing what the company said was hardy sales throughout its businesses, and particularly robust earnings in its domestic franchises.

Still, it reported a net loss of $802 million, or $2.23 per share, versus net loss of $92 million or $0.26 per share for the year-ago quarter.

Third quarter after-tax adjusted earnings per share of $3.44, on earnings of $1.26 billion surpassed the Wall Street consensus estimate of $3.13 and rose from $2.37 in the third quarter of 2022.

"Our third quarter results reflect continued momentum across our businesses, including the benefits from strong sales and the fifth consecutive quarter of underlying earnings growth," said Chairman and CEO Charles Lowrey.

Q3 operating return on average equity increased to 14.5% from 12.2% in Q2 and 9.8% in Q3 2022. Prudential’s assets under management of $1.36 trillion on Sept. 30, 2023, fell from $1.415 trillion on June 30 and increased from $1.35 trillion a year ago. U.S. businesses adjusted operating income before taxes were $1.09 billion, compared with $615 million a year ago.

Prudential launches Prismic

During the quarter, Prudential launched Prismic, a life and annuity reinsurance company alongside Warburg Pincus and other investors. Lowery said Prismic presents opportunities to drive sustainable long-term growth across its investment management, insurance, and retirement businesses.

“Through Prismic, we can ensure portions of our life and annuity in-force and new business to reduce market sensitivity, free up capital and invest in growth opportunities,” Lowery said in a call with investors on Thursday. “Prismic can also offer its services to other insurance companies in need of reinsurance support, tapping into additional sources of third-party capital to drive further growth.”

The company also cited a substantial cut in benefits and expenses in the third quarter, dropping to $8.52 billion from $19.9 billion a year ago.

“We're working to create a leaner, faster, and more agile company so that we can better meet the changing needs and expectations of our customers around the world while driving growth and efficiency to further strengthen our competitive position,” Lowery said. “We're taking new steps to simplify our organizational structure by reducing management layers, complexity and costs while making investments in technology and data platforms.”

The company’s overall goal, he said, is to empower faster decision-making and bring its integrated business teams closer to its customers and clients.

Higher rates add to loss

Rob Falzon, Prudential’s executive vice chairman, said the company’s after-tax net loss was primarily driven by mark-to-market losses on interest rate derivatives due to the higher rates. Variable investment income was below expectations in the third quarter by $25 million. And underwriting was adjusted by $10 million to normalize for third quarter experience, he said.

“Our global investment manager had lower other related revenues driven by lower agency and seed and co-investment earnings and higher expenses,” he said.

But the positive results of the U.S. businesses reflected higher spread income, he said, including more favorable variable investment income and lower expenses, partially offset by lower fee income and the increase in earnings in the international businesses.

Prudential stock ticked up more than 3% in midday trading Friday following the earnings release, to $94.45 per share.

“The key takeaway is that our underlying earnings power continued to improve due to business growth, including the benefit of higher interest rates,” said Kenneth Tanji, executive vice president and chief financial officer. “We continue to navigate the current macro environment with the financial strength of our rock-solid balance sheet, and we are maintaining a balanced and disciplined approach to capital deployment.”

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].

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Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].