Prudential forecasts increase in profits

BY JEFF MAY

Star-Ledger Staff



Prudential Financial executives yesterday said they expect another significant improvement in profit next year, as acquisitions overseas and in the U.S. retirement market become more fully integrated into the company's results.

At the end of its annual meeting for the investment community in New York, the Newark-based insurance and financial services company issued 2005 earnings guidance of $4.20 to $4.40 a share. It also affirmed this year's outlook of $3.30 to $3.40 a share.



Analysts had estimated 2005 earnings would fall in a range of $4.12 to $4.52, according to Thomson First Call.

"I'm very pleased with where we're positioned in the broad spectrum we call financial services," Prudential Chief Executive Art Ryan told analysts and institutional investors.

Prudential uses return on equity, a ratio of a company's net worth and net income before ordinary dividends, as its chief measure of performance. Ryan said the company is on track to meet its goal of 12 percent return on equity next year, and 14 percent by 2007 -- a year earlier than some analysts expected.



For the first nine months of this year, the company's return on equity was 10 percent.

Prudential has pushed to diversify its holdings into businesses with higher profit margins, such as international insurance. With the purchase of Gibralter Insurance three years ago, it sells more life insurance policies in Japan than it does in the United States. In the past year, the company revamped the pay structure for its agents in Japan and trimmed expenses, which has led to higher sales and profit.



"The business in Gibralter is better than we expected it to be," said Mark Grier, the company's vice chairman in charge of financial management.

Another fruitful area has been retirement savings, where Prudential bolstered its presence with two recent acquisitions American Skandia, a firm that specializes in variable annuities, and Cigna's retirement business. As the nation's population ages and more people become involved in managing their pensions, the market for retirement-related financial services is expected to grow to $39 trillion in 2012 from $19 trillion this year, the company said.

"We see this as a very natural extension for us," said John Strangfeld, a vice chairman who oversees Prudential's investment division.



The company expects to see improvement next year in the performance of its joint venture with Wachovia Securities, the nation's third largest retail securities brokerage. Prudential contributed its own retail brokerage to the venture, and owns 38 percent of the business. Its profits were tamped down this year, however, by one- time costs associated with the combination.



Ryan reiterated his plans to stay on as chief executive for three more years, when he will turn 65. He also plans to step down from the company's board then, too.

"That's a very good game plan," he said.

A regulatory lockup period that protected Prudential from being acquired for three years after its transformation into a public company expires this month. Ryan said the company has no plans to adopt antitakeover defenses.

"We don't look to be acquired," he said. "But we do not necessarily need any protection in the market."