Principal Financial Group, Inc. (PFG) has successfully managed to keep its positive surprise streak alive with its fourth-quarter and full year 2013 earnings results. This investment manager reported operating net earnings of 96 cents per share in the fourth quarter of 2013, surpassing the Zacks Consensus Estimate by 3.2% and marking the fifth straight quarter of positive earnings surprise. Moreover, earnings improved nearly 19% on a year-over-year basis.
Including net realized capital losses of 18 cents, net income available to common stockholders was $299.3 million or 78 cents per share, compared with $214.9 million or 72 cents per share a year ago.
The prior-year quarter included other unfavorable after-tax adjustments of 15 cents.
For full year 2013, Principal Financial posted record earnings of $3.55 per share which climbed 32% year over year and surpassed the Zacks Consensus Estimate by 0.6%.
Increased focus on fee-based businesses driving an upsurge in the top line more than offset the escalation in expenses, thereby aiding solid results for Principal Financial.
Operational Performance
Operating revenues of Principal Financial in the fourth quarter increased 20% to $2.74 billion. The upside was primarily due to 46% rise in premiums and other considerations and 23% increase in fees and other revenues. However, a 4.3% decrease in net investment income limited the upside. Revenues outpaced the Zacks Consensus Estimate of $2.37 billion. Full year revenues improved 4.7% year over year to $9.6 billion.
Total expense incurred by Principal Financial escalated 18.1% year over year to $2.35 billion. Increase in benefits, claims and settlement expenses, commissions, depreciation & amortization and compensation and other accounted for the rise in expenses.
Principal Financial’s assets under management in 2013 were a record $483.2 billion as of Dec 31, 2013, up 20% year over year.
Book value per share as of Dec 31, 2013, stood at $30.35, up 5% from Dec 31, 2012.
Segment Update
Retirement and Investor Services: Revenues in the quarter improved nearly 29.4% year over year to $1.46 billion.
Operating earnings increased 17.7% year over year to $179.2 million.
Principal Global Investors: Revenues in this segment amounted to $236.4 million, 40.7% higher than the prior-year period, driven by higher management fees due to AUM growth.
Operating earnings increased 15.3% year over year to $23.1 million. The improvement came primarily on the back of improved revenues.
Principal International: Revenues were $324.1 million in the quarter, up 21.9% year over year.
Operating earnings surged 48.4% year over year to $61.6 million in the quarter. Earnings benefited from the Cuprum acquisition and from returns on required encaje investments. However, strengthening of the U.S. dollar and one-time impact of a tax law change in Mexico weighed on the upside.
US Insurance Solution: Revenues were $787.7 million in the reported quarter, inching up 1% year over year.
Operating income was $59.7 million in the reported quarter, almost flat year over year.
Corporate: Operating loss widened to $44.7 million from a loss of $39.1 million recorded in the fourth quarter of 2012.
Dividend Update
The board of directors of Principal Financial declared a quarterly dividend of 28 cents per share, reflecting a 8% increase from fourth quarter of 2013. The dividend will be payable on Mar 28, 2014 to shareholders of record as of Mar 10. The annualized dividend came in at a record $1.12 per share.
Results of Few Other Investment Managers
T. Rowe Price Group, Inc. (TROW) reported its fourth-quarter 2013 net income of $1.06 per share, beating the Zacks Consensus Estimate by 2 cents. Moreover, this significantly outperformed the year-ago earnings of 88 cents.
BlackRock, Inc.’s (BLK) fourth-quarter adjusted earnings of $4.92 per share, which significantly surpassed the Zacks Consensus Estimate of $4.38. Further, this was up 24% from $3.96 earned in the year-ago quarter.
Federated Investors, Inc.’s (FII) reported fourth-quarter 2013 earnings per share of 39 cents, outpacing the Zacks Consensus Estimate of 36 cents. However, this compared unfavorably with the prior-year quarter earnings of 44 cents.
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.
Principal Financial noted in 2013, 63% of total operating earnings came from fee-based businesses. Moreover, a 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 presently carries a Zacks Rank #3 (Hold).
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