Principal Financial Group (PFG) reported third-quarter operating earnings per share of 61 cents, lagging behind the Zacks Consensus Estimate of 71 cents. Results also failed to surpass 68 cents earned in the prior-year quarter. Operating earnings were $191.9 million, down 12% from $218.9 million in the corresponding quarter last year.
Principal Financial delivered a weak quarter on the heels of double-digit earnings decline in Retirement and Investor Services, partly offset by double-digit growth in Principal Global Investors and Principal International.
Including net realized capital losses of $63.7 million or 21 cents per share and other unfavorable after-tax adjustments of $64.5 million or 20 cents per share, net income available to common stockholders was $63.7 million or 20 cents per share compared with $142.2 million or 44 cents per share a year ago.
The prior-year quarter included net realized capital losses of $30.9 million or 10 cents per share and other unfavorable after tax adjustments of $45.8 million or 14 cents per share.
Operational Performance
Third quarter operating revenues improved to gross $2.03 billion from $1.99 billion in the year-ago quarter. An improvement in premium revenue coupled with higher fee aided the revenue climb.
Principal reported a 5.7% year-over-year growth in premium to gross $583.0 million in the quarter. Fees and other revenues surged 11.7% over prior year quarter to $603.1 million.
Net investment income in the quarter inched down 6.1% year over year to $840.2 million in the third quarter.
Total expenses increased 4.9% year over year to $1.8 billion. Increase in commissions, amortization of DPAC and compensations contributed to the increase.
Assets under management were $320.8 billion as of September 30, 2011, up 5% from prior-year quarter end.
Book value per share as of September 30, 2011, was $29.59, up 7% from $27.71 as of September 30, 2010.
Segment Update
Retirement and Investor Services: Revenues were $995.5 million in the third quarter, increasing 0.2% from $997 million in the year-ago quarter. The decline was largely attributable to lower revenues for the “guaranteed businesses”, partially offset by increase in revenues in the “accumulation business”.
Operating earnings sank 12.8% year over year to $128.6 million in the quarter. Earnings decline in 3 out of 6 business lines within the segment fueled the overall decrease.
Principal Global Investors: Revenues in the quarter were $132.9 million, 12.6% higher than $118 million in the prior-year period, primarily due to higher asset management as well as transaction fees.
Operating earnings were $19.1 million, showing a surge of 27%, largely driven by an increase in revenue and operating leverage.
Principal International: Revenues were $220.2 million, up 10% from $200.1 million in the prior-year quarter. An increase in assets under management contributed to the growth.
Operating earnings improved 11% year over year to $36.6 million driven by an increase in assets under management.
US Insurance Solution: Revenues increased 6.3% year over year to $734.3 million in the quarter. The improvement was driven by stronger individual life insurance premiums and fees and positive trends in sales and client retention in Specialty Benefits.
Operating earnings inched up to $47.6 million in the quarter from $47.3 million in the year ago quarter.
Corporate: Operating losses increased to $40.0 million from $23.9 million in the year-ago quarter, mainly due to lower variable investment income in the holding company.
Share Repurchase
During the reported quarter, Principal completed the remainder of the $250 million authorization. Outstanding shares at the end of the repurchase program stood at 9.1 million.
Additionally, on August 17, 2011, Principal authorized a buyback of $200 million of common stock. The new authorization is part of the company’s strategy to deploy up to $400 million of capital for acquisitions or share buybacks in the second half of 2011.
Dividend Update
On October 27, 2011, Principal declared an annual dividend of 70 cents per share, payable on December 2, 2011 to shareholders of record as on November 10, 2011. The dividend is 27% higher than 55 cents per share declared in November 2010.
On August 17, 2011, Principal declared a cash dividend of $1.39 per share on its 5.563% Series A non-cumulative perpetual preferred stock and a cash dividend of 41 cents per share on its 6.518% Series B non-cumulative perpetual preferred stock. The preferred dividends were paid on September 30, 2011, to preferred stockholders of record as on September 8, 2011.
Based in Des Moines, Iowa, Principal Financial Group Inc. provides an expansive range of retirement savings, investment and insurance products and services through its various subsidiaries. Lincoln National Corporation (LNC), which competes with Principal Financial, is scheduled to release its results after the market closes on November 2, 2011.
The quantitative Zacks #4 Rank (short-term Sell rating) for Principal Financial indicates downward pressure on the shares over the near term.
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