May 6, 2008 / 11:37 AM / 10 years ago

Sun Life executives warn of challenging 2008

TORONTO (Reuters) - First-quarter net profit grew 7 percent at Sun Life Financial (SLF.TO), the insurer said on Tuesday, but global credit pressures and a robust Canadian dollar took a bigger bite out of operating earnings than analysts had expected and executives warned a tough year lies ahead.

Sun Life’s stock skidded on the Toronto Stock Exchange, falling 4.4 percent to C$47.05 in morning trading.

Executives of Sun Life said during a conference call that difficult first-quarter economic conditions will hinder their goals of 10 percent growth in operating earnings per share, and 15 percent return on equity.

“At this point, we expect the balance of 2008 to remain challenging,” Sun Life Chief Executive Don Stewart said.

A scenario of “little or no growth” could be a reality for 2008, Chief Financial Officer Rick McKenney said.

“An economic slowdown in North America, uncertainty in the capital markets and the strength of the Canadian dollar may limit short-term earnings growth, much like they did this quarter,” McKenney said.

However, the company is taking steps to cut costs and re-prioritize projects, McKenney said.

“Specifically, we will reduce both our project costs and discretionary, general and administrative costs this year,” McKenney said.

Sun Life earned C$533 million ($528 million), or 93 Canadian cents a share, in the three months ended March 31.

That’s up from profit of C$497 million, or 86 Canadian cents a share, in the same 2007 period.

But operating earnings per share fell to 93 Canadian cents from 96 Canadian cents a year earlier. This measure was crimped by C$43 million, or 8 Canadian cents a share, due to a sturdy Canadian dollar relative to foreign currencies.

Excluding the currency impact, operating earnings would have grown 5 percent to C$1.01 per share, Sun Life said.

That figure would have been in line with analysts’ expectations, according to Reuters Estimates.

Return on equity was 13.4 percent in the quarter, up from 12.0 percent a year earlier, but lower than the most recent three quarters.

Analysts said Canadian life insurance companies had grappled with a variety of pressures in the first quarter, including the strong Canadian dollar, volatile financial markets and low interest rates.

Within Sun Life’s various units, net income at SLF Canada dipped to C$247 million, from C$250 million a year earlier.

At the U.S. division, profit grew 15 percent to C$113 million, but profit was 35 percent higher in U.S. dollars.

Profit at MFS, the U.S. mutual funds business, fell 18 percent to C$59 million, and total assets under management fell due to market depreciation and net redemptions of funds.

Quarterly earnings at SLF Asia plunged 66 percent to C$13 million, mostly due to lower earnings in Hong Kong, the company said.

($1=$1.01 Canadian)

Additional reporting by Frank Pingue; Editing by Bernadette Baum

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