Business Context and Reporting Period
This Form 8-K filing by Prudential Financial, Inc. was submitted on December 10, 2009. The report discloses earnings guidance and return on equity targets announced during the company's Investor Day conference in New York City.
Key Financial Metrics and Guidance
- 2010 EPS Guidance: Management expects Common Stock earnings per share in the range of $5.40 to $5.70.
- 2009 EPS Guidance: Management reaffirmed expectations for Common Stock earnings per share in the range of $5.40 to $5.60.
- 2012 Return on Equity (ROE) Target: The target range is 12% to 13%.
- Measurement Basis: All guidance is based on after-tax adjusted operating income of the Financial Services Businesses, a non-GAAP measure.
- Market Assumptions: The 2010 guidance assumes a December 31, 2010 S&P 500 Index of 1,200 and an average S&P level of approximately 1,150 for 2010.
The filing does not provide specific values for revenue, total profit, cash flow, margins, debt, or liquidity for the current period, as the document focuses exclusively on forward-looking guidance.
Material Changes and Non-GAAP Measures
The filing details the definition of "Adjusted Operating Income," which excludes realized investment gains and losses (including impairments and credit-related losses), gains/losses from foreign currency exchange movements on economically hedged items, and results of divested businesses. Management notes that these exclusions are intended to highlight underlying profitability trends without the fluctuating effects of market-driven transactions.
Outlook, Risks, and Contingencies
Management does not expect to provide updates during 2010 regarding the earnings per share guidance or the ROE target. The filing includes extensive forward-looking statements subject to significant risks and uncertainties, including:
- Severe economic conditions and stress in global financial markets experienced since late 2007.
- Availability and cost of external financing.
- Interest rate fluctuations and investment losses.
- Reestimates of reserves for future policy benefits and claims.
- Changes in tax law, regulatory actions, and litigation exposures.
- Risks related to international operations, including currency fluctuations.
Investor Verification Checklist
- Verify the specific assumptions regarding the S&P 500 Index levels used in the 2010 guidance.
- Review the reconciliation of "Adjusted Operating Income" to GAAP net income in the company's Form 10-Q for the quarter ended September 30, 2009.
- Assess the impact of potential realized investment losses, which are excluded from the guidance but could materially affect GAAP earnings.
- Monitor the company's ability to meet the 2012 ROE target given the exclusion of accumulated other comprehensive income related to unrealized gains/losses.