Principal Financial’s (PFG) first quarter operating earnings of 71 cents per share modestly surpassed the Zacks Consensus Estimate by a penny. Results were ahead of 69 cents earned in the prior-year quarter. Operating earnings were $231.8 million, up by 5% from $203.9 million in the corresponding quarter last year.
Principal Financial delivered a strong quarter on the heels of double-digit earnings growth from Principal Global Investors, Principal Funds, Individual Annuities and U.S. Insurance Solutions.
Including net realized capital losses of $53.6 million or 16 cents per share and other after tax adjustments of $17.1 million or 5 cents per share, net income available to common stockholders was $196.3 million or 60 cents per share compared with $190.8 million or 59 cents a year ago. The prior-year quarter included net realized capital losses of $56.7 million or 18 cents per share and other after tax adjustments of $26.1 million or 8 cents per share.
Operational Performance
First quarter operating revenues improved 4% year over year to gross $2.05 billion. Results fell slightly below the Zacks Consensus Estimate of $2.06 billion. An improvement in premium revenue coupled with higher fee and other revenues aided the revenue climb.
Principal reported a 4% year-over-year growth in premium to gross $571 million in the quarter.
Net investment income in the quarter remained flat compared to the prior year quarter at $881 million.
Total expenses increased 3% year over year to $1.7 billion. Increase in commissions, amortization in DPAC and compensations contributed to the increase.
Assets under management were $327.4 billion as of March 31, 2011, up 12% from the year-ago quarter. Improved results at three asset management and asset accumulation segments drove the increase.
Book value per share as of March 31, 2011, was $28.38, up 6% from $26.87 as of March 31, 2010.
Segment Update
Retirement and Investor Services: Revenue was $1.02 billion in the first quarter, inching up from $1.01 million in the year ago quarter. The improvement was largely due to higher revenues from “accumulation businesses”.
Operating earnings increased 1.5% year over year to $159.3 million in the quarter. Higher earnings in every business line within the segment fueled the overall increase.
Principal Global Investors: Revenues in the quarter were $125.3 million, 10% higher than $113.8 million in the prior-year period, primarily due to higher management fee as well as transaction fees.
Operating earnings were $16.6 million up by 38%, largely driven by an increase in assets under management.
Principal International: Revenues were $206.2 million, up 14% from $181.1 million in the prior-year quarter. An increase in assets under management contributed to the growth.
Operating earnings decreased 28% year over year to $28.5 million resulting from reduced economic interest in the Brazilian joint venture.
US Insurance Solution: Revenues increased 6% year over year to $731.2 million in the quarter. The improvement was driven by stronger non-qualified life insurance sales and positive trends in sales, lapses and employment in Specialty Benefits.
Operating earnings were $59.5 million, up 35% from $56.0 million in the prior-year quarter. Higher earnings at Individual Life and Specialty Benefits largely contributed to the overall decline in operating earnings at the segment.
Peer Comparison
Lincoln National Corp. (LNC), which competes with Principal Financial, reported first quarter operating earnings per share of $1.08 came in substantially ahead of the Zacks Consensus Estimate of 92 cents and 83 cents recorded in the prior-year quarter.
Our Take
Principal’s strong franchise within the pension sector, aided by its diversification in both products and geography, positions it to benefit from the gradual recovery of the credit market. Decent capital levels and cost containment measures also augur well.
Principal also remains focused on expanding its geographic presence. The company acquired the majority shares in Finisterre Capital LLP, and Finisterre Holdings Limited to add to its emerging market investment capabilities.
Principal also acquired HSBC AFORE, S.A. de C.V. (HAFO) to enhance its presence in Mexico. These acquisitions are in sync with management’s intention to strategically deploy $700 million of capital over a period of 1 year for appropriate merger and acquisition opportunities.
We maintain our Neutral recommendation on Principal Financial. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
LINCOLN NATL-IN (LNC): Free Stock Analysis Report
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