Principal Financial Group, Inc. (PFG) yet again delivered a positive surprise with fourth-quarter earnings results. Operating net income of $1.09 per share outperformed the Zacks Consensus Estimate by about 5% and improved nearly 14% year over year.
Increased focus on fee-based businesses drove the top line, and more than offset the increase in expenses thereby propelling earnings.
Including net realized capital losses of 18 cents, net income available to common stockholders was 91 cents per share, down 17% year over year.
Behind the Headlines
Operating revenues in the fourth quarter increased 8% year over year to $2.96 billion. An 18% rise in premiums and other considerations, a 3% increase in fees and other revenues and a 0.3% higher net investment income drove the upside. Revenues outpaced the Zacks Consensus Estimate of $2.6 billion.
Total expense incurred by Principal Financial increased 9% year over year to $2.6 billion. Increase in benefits, claims and settlement expenses, commissions, depreciation and amortization accounted for the expense rise.
Principal Financial’s assets under management as of Dec 31, 2014 were a record $519 billion.
Book value per share as of at the same date was $32.64, up 7.5% year over year.
Full-Year Review
Operating net earnings came in at $4.41, surpassing the Zacks Consensus Estimate by about 1% and increasing 24% year over year.
Net earnings were $3.65 per share, up 24% year over year.
Segment Update
Retirement and Investor Services: Revenues in the quarter improved nearly 14.5% year over year to $1.7 billion.
Operating earnings increased 8.9% year over year to $195.2 million.
Revenues were $10.6 billion, up 10% year over year.
Principal Global Investors: Revenues of $208 million were 12% lower than the prior-year period due to lower performance fees.
Operating earnings increased 20.5% year over year to $36.4 million on improved margins and an increased stake in Columbus Circle Investors.
Principal International: Revenues were $323.2 million in the quarter, down 0.3% year over year.
Operating earnings improved 2.1% year over year to $62.9 million in the quarter. Results benefited from growth in the business and an additional month of Cuprum’s results.
US Insurance Solution: Revenues were $826 million, up 4.8% year over year.
Operating income was $55.6 million, down about 7% year over year.
Corporate: Operating loss narrowed to $26.1 million from a loss of $44.7 million recorded in the fourth quarter of 2013.
Dividend and Share Repurchase Update
The board of directors of Principal Financial approved a quarterly dividend of 36 cents per share, reflecting an increase of 6% over the last payout. The dividend will be paid on Mar 27 to shareholders of record on Mar 9.
Principal Financial also paid a dividend of 34 cents per share in the quarter.
With respect to share repurchases, the company spent about $207 million to buy back 4.3 million shares in 2014.
Our Take
Increased focus on fee-based revenue sources helped Principal Financial to earn a steady income and return capital to its shareholders through dividends or deploy capital for strategic acquisitions. Riding on this strength, it deployed $855 million of capital, more than 75% of 2014 net income.
The company’s diversified business and geographical exposure positions it well to capitalize on opportunities both domestic and global, and fortify its worldwide investment management leadership position. Its acquisitions continue to drive inorganic growth.
Principal Financial presently carries a Zacks Rank #3 (Hold).
Results of Other Investment Managers
While The Blackstone Group L.P. (BX) outperformed the Zacks Consensus Estimate on effective cost management, Ameriprise Financial Inc. (AMP) surpassed as revenue & AUM increased. Invesco Ltd. (IVZ) also beat on strong top-line growth.
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