Principal Financial Q2 Earnings & Revenues Beat, Dividend Up - Analyst Blog

By Zacks Equity Research,

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Principal Financial Group, Inc . ( PFG ) has successfully managed to keep its positive surprise streak alive for seven straight quarters. Operating net income of $1.08 per share for the second quarter of 2014 outperformed the Zacks Consensus Estimate by about 7% and improved nearly 19% year over year.

Principal Financial Group, Inc - Earnings Surprise | FindTheBest

Including net realized capital gains of 10 cents, and unfavorable adjustment of 15 cents, net income available to common stockholders was a record of $1.03 cents per share, up 37% year over year.

Increased focus on fee-based businesses along with improved investment income drove the top line higher, and more than offset the increase in expenses thereby aiding solid earnings at Principal Financial.

Behind the Headlines

Operating revenues in the second quarter increased 10% year over year to $2.5 billion. A 13% rise in premiums and other considerations, a 6.3% increase in fees and other revenues and a 10% improvement in net investment income drove the upside.  Revenues marginally outpaced the Zacks Consensus Estimate.

Total expense incurred by Principal Financial increased 8% year over year to $2.1 billion. Increase in benefits, claims and settlement expenses and commissions accounted for the increase in expenses.

Principal Financial's assets under management in the quarter were a record $517.9 billion as of Jun 30, 2014, up 15% year over year.

Book value per share as of Jun 30, 2014, stood at $31.52, up 6% year over year.

Segment Update

Retirement and Investor Services : Revenues in the quarter improved nearly 10% year over year to $637.1 million.

Operating earnings increased 26% year over year to $181.4 million on improved top line and controlled expenses.

Principal Global Investors : Revenues in this segment amounted to $173.2 million, 3% higher than the prior-year period, driven by higher management fees due to AUM growth.

Operating earnings declined 6% year over year to $27.4 million.

Principal International : Revenues were $390.8 million in the quarter, up 16% year over year, driven by growth in AUM from positive net cash flows.

Operating earnings improved 17% year over year to $68 million in the quarter.

US Insurance Solution : Revenues were $811.4 million, up 5% year over year.

Operating income was $49 million, up about 3.8% year over year.

Corporate : Operating loss narrowed to $33.4 million from a loss of $35.4 million recorded in the second quarter of 2013.

Dividend and Share Repurchase Update

The board of directors of Principal Financial approved a quarterly dividend of 34 cents per share, representing a 6% sequential increase. The dividend will be paid on Sep 26 to shareholders of record on Sep 8.

Principal Financial also paid a dividend of 32 cents per share on Jun 27.

With respect to share repurchases, the company spent about $6.1 million to buy back 1.3 million shares.

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 expects capital deployment near the high end of the $500-$700 million range.

Given the strategic acquisitions that the company has undertaken, its inorganic growth story also looks attractive. The company remains optimistic on the opportunities in the emerging markets.

Principal Financial also noted that business model diversification coupled with successful execution of investment management strategy sustained the growth momentum for the investment manager.

Principal Financial presently carries a Zacks Rank #2 (Buy).

Results of a Few Other Investment Managers

While The Blackstone Group L.P. ( BX ) outperformed the Zacks Consensus Estimate on rise in performance fees, BlackRock, Inc. ( BLK ) bettered the same on strong inflows. Yet another investment manager, Janus Capital Group Inc. ( JNS ) surpassed the estimate aided by higher revenues.

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PRINCIPAL FINL (PFG): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Stocks: JNS , BX , PFG , BLK

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