Sign in

You're signed outSign in or to get full access.

PF

PRUDENTIAL FINANCIAL INC (PRU)·Q1 2025 Earnings Summary

Executive Summary

  • After-tax adjusted operating EPS was $3.29, above S&P Global consensus of $3.18; GAAP diluted EPS was $1.96. Management flagged below-expectation alternative investment returns as a headwind, yet AOI increased 7% year over year to $1.188B. *
  • Revenue was $13.41B, below the $14.56B S&P Global consensus; segment AOI showed strength in U.S. Businesses and resilience in PGIM flows despite margin pressure. *
  • The CEO reiterated intermediate-term targets of 5–8% core AOI EPS growth through 2027, while cautioning about a 3–4 point drag in 2025 from Japan surrenders and VA/GUL runoff.
  • Capital return remained robust: $736M in Q1 (dividends $486M; buybacks $250M) and a declared quarterly dividend of $1.35; parent company highly liquid assets stood at $4.9B.

What Went Well and What Went Wrong

What Went Well

  • U.S. Businesses AOI rose to $931M (vs. $805M YoY) on favorable underwriting and lower expenses; Group Insurance AOI improved to $89M with an 81.3% benefit ratio, reflecting disciplined pricing and claims.
  • PGIM reported net inflows of $4.3B and AUM up 3% YoY to $1.385T; institutional flows were broad-based across fixed income, private alternatives, and equity.
  • CEO tone focused on execution and capital allocation: “We will evolve and deliver on our strategy, improve our execution, and foster a high-performance culture... and balance investments with meaningful dividends and repurchases.”

What Went Wrong

  • Alternative investment income was ~$90M below expectations, pressuring spread income in U.S. Businesses and International; PGIM margins were seasonally and volatility-driven lower (reported operating margin 15.8%).
  • International AOI decreased to $848M (vs. $896M YoY) on lower spreads, JV earnings, and FX; Japan surrenders remained a 2025 headwind (~$100M impact), despite signs of stabilization.
  • Revenue missed S&P consensus (actual $13.41B vs. $14.56B), reflecting lower premiums and realized investment losses excluded from AOI. *

Financial Results

Summary vs Prior Periods and Estimates

MetricQ3 2024Q4 2024Q1 2025
Total Revenues ($USD Billions)$19.49 $13.01 $13.41
GAAP Diluted EPS ($)$1.24 ($0.17) $1.96
Adjusted Operating EPS (Diluted) ($)$3.48 $2.96 $3.29
EPS vs S&P Consensus ($)——Beat by $0.11 (actual $3.29 vs. $3.18)*
Revenue vs S&P Consensus ($B)——Miss by ~$1.16 (actual $13.41 vs. $14.56)*

Values with asterisk retrieved from S&P Global.

Segment AOI (Pre-tax)

Segment AOI ($USD Millions)Q3 2024Q4 2024Q1 2025
PGIM$241 $259 $156
U.S. Businesses$1,108 $860 $931
International Businesses$766 $742 $848
Corporate & Other($487) ($490) ($415)
Total AOI (Pre-tax)$1,628 $1,371 $1,520

Margins and Operating Ratios

MetricQ3 2024Q4 2024Q1 2025
PGIM Reported Operating Margin (%)23.6% 23.2% 15.8%
Group Insurance Total Benefits Ratio (%)83.4% 83.1% 81.3%

Key KPIs and Balance Sheet

KPIQ3 2024Q4 2024Q1 2025
PGIM AUM ($USD Trillions, end period)$1.400 $1.375 $1.385
PGIM Net Flows ($USD Billions)—$8.6 $4.3
Institutional Retirement Net Account Value ($USD Billions, net)$278.77 $279.19 $284.98
Individual Retirement Sales ($USD Billions)—$3.636 $3.473
Group Insurance ANBP ($USD Millions)63 63 400
Parent Co Highly Liquid Assets ($USD Billions)—$4.6 $4.9
Capital Returned ($USD Millions)721 720 736

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core AOI EPS Growth2025–20275–8% average growth (introduced Q4’24) Reiterated; path not linear due to 2025 headwinds Maintained
Near-term EPS DragFY 2025Not quantified3–4 point drag from Japan surrenders and VA/GUL runoff New/Quantified
PGIM Adjusted Margin Target3-year period25–30% target (prior quarter) Reaffirmed long-term path to ~30%; Q1 margin impacted by volatility Maintained
Free Cash Flow TargetOngoing65% of net income over time (prior quarter) Reiterated; not linear intra-year Maintained
Common DividendQ1/Q2 2025Raised to $1.35 in Feb 2025 Declared $1.35 payable June 12, 2025 Maintained
Share Repurchase AuthorizationCY 2025Up to $1.0B authorization Affirmed; $250M Q1 buybacks executed Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3’24 and Q4’24)Current Period (Q1’25)Trend
Capital deployment discipline (organic/inorganic)Balance returns with growth; $1B buyback authorization “Uses of capital could evolve… continuous discipline” Ongoing optimization
PGIM margins and volatilityStrong Q4 margins (23.2%); flows momentum Q1 margin 15.8% on seed/co-investment volatility; long-term path to 30% Near-term pressure; LT positive
Japan ESR and surrendersPlanning for ESR; diversification; reinsurance pipeline Capital to remain AA-level post ESR; ~$100M earnings impact from 2024 surrenders in 2025; preliminary ESR in summer Managing transition; stabilizing surrenders
VA/GUL runoffDerisking progress; transactions announced Runoff drags $100–$150M annually; reduces market sensitivity Headwind in 2025; reduces risk
Alternative investmentsSupport AOI; Q4 strong incentive fees ~200–250 bps below LT return targets under conservative scenario; Q1 ~-$90M vs plan Near-term underperformance
PRT market & litigationRobust 2024 activity 2025 may normalize due to volatility; long-term $3T opportunity intact Episodic; LT tailwind

Management Commentary

  • Strategic priorities: “We will evolve and deliver on our strategy, improve our execution, and foster a high-performance culture… balance investments with meaningful dividends and repurchases.”
  • Earnings growth and headwinds: “We continue to expect 5% to 8% core adjusted operating EPS growth on average through 2027… near-term drag 3 to 4 points in 2025.”
  • PGIM margins: “First quarter is typically lowest margin… volatility affected seed and co-investments… confident in path towards 30%.”
  • Japan and ESR: “Capital levels will be above AA thresholds post ESR… majority of USD liabilities reinsured outside Japan; preliminary ESR this summer.”

Q&A Highlights

  • Capital allocation: CEO emphasized continuous evaluation across organic/inorganic uses; expect evolution over time in response to markets.
  • PGIM margin path: Target remains 25–30% over three years; near-term volatility headwinds acknowledged.
  • Japan ESR and surrenders: AA capital levels expected post ESR; ~$100M 2025 earnings impact from 2024 surrenders; most contracts beyond surrender charge period.
  • Retirement earnings emergence: Institutional spread growth from 2024 PRT offset by expense reallocation ($50M annual), lower cash spreads (short-term rates), and derivative accounting refinement.
  • Alternatives sensitivity: A 10% equity decline with modest recovery could reduce alternatives returns 200–250 bps vs 7–9% LT, lowering AOI EPS by ~$0.30 annually under equity shock; interest rate decline of 50 bps implies ~20% AOI EPS impact.
  • Capital returns framing: 65% of net income free cash flow target is an over-time measure; Q1 upstream cash ~$600M to HoldCo.

Estimates Context

  • EPS: $3.29 vs S&P consensus $3.18; beat of $0.11 driven by underwriting improvement and expense discipline despite weaker alternatives.*
  • Revenue: $13.41B vs S&P consensus $14.56B; miss of ~$1.16B as premiums and spread dynamics moderated versus expectations.*
  • Analyst participation: 14 EPS estimates; 5 revenue estimates for Q1 2025.*

Values retrieved from S&P Global.

Key Takeaways for Investors

  • Quality beat on AOI EPS despite alternatives headwinds; revenue miss likely less stock-moving for insurers where AOI is the focus. *
  • U.S. Businesses’ underwriting strength and Group Insurance benefit ratio improvement are supportive of near-term earnings quality.
  • PGIM flows strong but margins pressured by volatility; expect quarterly noise, with management reiterating a credible path to ~30% margins over time.
  • 2025 transitory drags (Japan surrenders, VA/GUL runoff) are quantified; trajectory improves as surrenders stabilize and runoff impact wanes into 2026–2027.
  • Capital return remains attractive (5.6% yield on adjusted book value, $736M returned in Q1); dividend of $1.35 reaffirmed.
  • Watch for ESR preliminary disclosure this summer and continued Prismic/reinsurance activity as catalysts for risk-weight and capital optimization.
  • Near-term trading: Expect sensitivity to markets/alternatives; medium-term thesis hinges on execution in underwriting, expense control, PGIM margin expansion, and balance sheet optimization.