Prudential CEO Looks to Expand Abroad, in Asset Management

(Bloomberg) -- Prudential Financial Inc. Chief Executive Officer Charles Lowrey unveiled his three-year strategy to transform the company through deals, cost savings and share buybacks.

The life insurer has allocated $5 billion to $10 billion to invest in and acquire growth businesses, which will contribute more than 30% to its earnings by 2023 from a current 18%, Lowrey said Thursday in an interview. The firm is looking to expand in China, India, Indonesia, Latin America and Africa, and is considering bolt-on purchases in asset management, he said.

“Our strategy is designed to deliver higher growth, with greater efficiency and lower market sensitivity,” he said. “We’re always looking for strategic acquisitions.”

Lowrey, who took the helm in December 2018, laid out the plan alongside Prudential’s fourth-quarter results. After-tax adjusted operating income was $2.93 a share, beating the $2.56 median estimate of 13 analysts surveyed by Bloomberg. The CEO also laid out plans to cut $750 million in costs and return about $10 billion to shareholders via dividends and share repurchases over the next three years.

Prudential aims to halve the contribution of individual annuities to its earnings, and it’ll achieve this through sales, reinsurance transactions or the expiration of policies, Lowrey said.

“We have everything that it takes to succeed in this marketplace -- what we’re doing is refining those capabilities,” he said. “If we can achieve what we want by the end of 2023, I think you get a company with higher growth, less market sensitivity, less volatility, a higher multiple and hopefully a much higher stock price and happy shareholders.”

Key Insights

• Profit for the U.S. business fell 4% to $807 million in the fourth quarter as coronavirus deaths weighed on underwriting.
• PGIM, its asset-management unit, posted record operating income of $404 million. That was up 40% from a year earlier, buoyed by higher fees. Assets under management surged 13% to a record $1.5 trillion. In terms of acquisitions, the company is interested in adding specific capabilities, like alternative investments, while maintaining its multi-manager structure.
• The company is exploring options to reduce its real-estate footprint and will likely move toward a hybrid model of having employees in-office and at home, said Lowrey, who is a former architect. “We are working in new ways and we’ve proved to ourselves that we can work remotely,” he said. Still, Prudential plans to have more spaces in its offices to enable staff to meet, learn and instill company culture.
• Analysts focused on deal plans during the company’s earnings conference call Friday. “We’ll be very focused and disciplined on looking at fair value,” Chief Financial Officer Ken Tanji said.

Market Reaction

• Shares declined 3.5% to $79.85 as of 12:24 p.m. on Friday. They’re up 2.3% this year after dropping almost 17% in 2020.

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• Net income fell 27% from a year earlier to $819 million.
• The board authorized $1.5 billion of buybacks through year-end.
• Prudential’s statement is here. Its presentation is here.

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