Principal Financial Group, Inc. (PFG) reported third-quarter 2013 operating net earnings of 90 cents per share. The reported results outpaced the Zacks Consensus Estimate by 3.5% and improved nearly 22% year over year.
Reduction in expenses largely aided the upside.
Including net realized capital losses of 8 cents, net income available to common stockholders was $245.7 million or 82 cents per share, compared with $187.2 million or 63 cents per share a year ago.
The prior-year quarter included net realized capital gains of 30 cents and other unfavorable after-tax adjustments of 15 cents.
Operational Performance
Operating revenues of Principal Financial in the third quarter declined 12% to $2.32 billion. The downside was primarily due to 39.3% dip in premiums and other considerations. However, 19% increase in fees and other revenues and a slight increase in net investment income limited the downside. Revenues fell short of the Zacks Consensus Estimate of $2.35 billion.
Total expenses incurred by Principal Financial reduced 20.5% year over year to $1.96 billion. Lower benefits, claims and settlement expenses as well as lower amortization drove the improvement.
Principal Financial’s assets under management were $462.2 billion as of Sep 30, 2013, up 19% year over year.
Book value per share as of Sep 30, 2013, stood at $29.79, inching up 5% year over year.
Segment Update
Retirement and Investor Services: Revenues in the quarter declined nearly 27.6% year over year to $1.14 billion.
Operating earnings increased 25.7% year over year to $172.9 million.
Principal Global Investors: Revenues in this segment amounted to $160.9 million, 11.7% higher than the prior-year period, driven by higher management fees due to AUM growth.
Operating earnings improved 12.1% year over year to $23.1 million. The increase was primarily on the back of improved revenues and enhanced pretax margin.
Principal International: Revenues were $303 million in the quarter, up 48.8% year over year.
Operating earnings surged 37% year over year to $50.7 million in the quarter.
US Insurance Solution: Revenues were $767.7 million in the reported quarter, inching up 0.1% year over year.
Operating income was $54 million in the reported quarter, rebounding from a loss of $21.6 million in the year-ago quarter.
Corporate: Operating loss widened to $31.5 million from a loss of $31.2 million recorded in the third quarter of 2012.
Dividend and Share Repurchase Update
The board of directors of Principal Financial declared a quarterly dividend of 26 cents per share. The dividend will be payable on Dec 27, 2013 to shareholders of record as of Dec 9, 2013. The annualized dividend came in at a record 98 cents.
Principal Financial also paid a quarterly dividend of 26 cents on Sep 27.
The company also bought back 1.5 million shares in the third quarter.
Results of Few Other Investment Managers
T. Rowe Price Group, Inc. (TROW) reported its third-quarter 2013 net income of $1.00 per share, beating the Zacks Consensus Estimate by a nickel. Moreover, the results significantly outperformed the year-ago earnings of 87 cents.
BlackRock, Inc.’s (BLK) third-quarter 2013 adjusted earnings came in at $3.88 per share, in line with the Zacks Consensus Estimate. The figure was up 12% from $3.47 earned in the year-ago quarter.
Federated Investors, Inc.’s (FII) third-quarter 2013 earnings came in at 38 cents per share, a penny above the Zacks Consensus Estimate. However, it lagged the year-ago quarter by 12%.
Our Take
Increased focus on fee-based revenue sources helped Principal Financial earn steady income and return capital to its shareholders through dividends, or deploy the same in strategic acquisitions.
Moreover, fee-based business model limits exposure to the interest rate environment. Given the strategic acquisitions that the company has undertaken, its inorganic growth story also looks attractive.
Principal Financial also remains focused to enhance its shareholders value.
Principal Financial presently carries a Zacks Rank #3 (Hold).
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