Principal Financial (PFG) Misses On Q4 Earnings & Revenues

Principal Financial Group, Inc.’s (NASDAQ:PFG) fourth-quarter 2017 operating net income of $1.19 per share missed the Zacks Consensus Estimate by 13.1%. The bottom line declined 6.3% year over year due to fall in the top line.

Principal Financial Group Inc Price, Consensus and EPS Surprise

Including net realized capital gains of 11 cents per share and other favorable after-tax adjustments of $1.79, net income came in at $2.87 and more than doubled year over year.

The company’s investment performance and net cash flows remained strong. Expenses reduced on disciplined expense management. The company also displayed a balanced approach to capital management. Notably, quarterly results benefited from the Tax Cuts and Jobs Act.

Behind the Headlines

Operating revenues decreased 7.9% year over year to $3.28 billion. Lower premiums and other considerations attributed to this downside. The top line missed the Zacks Consensus Estimate of $3.32 billion.

Total expenses lessened 6.7% year over year to $2.9 billion, primarily on decrease in benefits, claims and settlement expense as well as dividends to policyholders.

Principal Financial’s Asset Under Management (AUM) as of Dec 31, 2017 was a record $669 billion, up 13% year over year.

Full-Year Highlights

Operating earnings of $5.04 per share for 2017 missed the Zacks Consensus Estimate of $5.23. However, the bottom line rose 10.8% over 2016.

Revenues of $13.57 billion also lagged the consensus mark of $13.77 billion. However, the top line improved 11% year over year.

Segment Update

Retirement and Income Solution: Revenues declined 17.2% year over year to about $1.6 billion.

Pre-tax operating earnings fell 4.6% year over year to $201.7 million.

Principal Global Investors: Revenues of $375.5 million slipped 1.2% from the prior-year quarter.

Operating earnings decreased 7.2% year over year to $124.1 million, attributable to lower performance fees, partially offset by higher management fees.

Principal International: Revenues increased 7.6% year over year to $336.1 million in the quarter.

Operating earnings improved 18.6% year over year to $78.3 million, driven by growth in the business and less unfavorable encaje performance.

U.S. Insurance Solution: Revenues grew 6.7% year over year to $990.1 million.

Operating earnings of $110.9 million were up 3.7% year over year, driven by favorable mortality.

Corporate: Revenues of $(19.2) million compared unfavorably with $5.3 million in the year-ago quarter.

Operating loss of $61.5 million was wider than $53.3 million a year ago, attributable to higher operating expenses.

Financial Update

As of Dec 31, 2017, cash and cash equivalents were $2.5 billion compared with $2.7 billion as of Dec 31, 2016.

At the end of 2017, debt was $3.2 billion, up from $3.1 billion at 2016 year-end.

As of Dec 31, 2017, book value per share (excluding AOCI other than foreign currency translation adjustment) was $40.71, up 19.4% year over year.

Dividend and Share Repurchase Update

The company paid $540 million in dividends and deployed $193 million to buy back 3.1 million shares in 2017. Total capital utilized in the year was $913 million.

The board of directors of Principal Financial announced a dividend of 51 cents per share for the first quarter of 2018, reflecting a 13% year-over-year rise and an eighth straight quarterly dividend hike by the company.

Principal Financial provides guidance for 2018 capital deployment with a target range of $0.9-$1.3 billion.

New Tax Rate Per The Tax Cuts and Jobs Act

Effective tax rate in 2018 is estimated between 18% and 21%.

Zacks Rank

Principal Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Managers

Last quarter, the bottom line of Ameriprise Financial, Inc. (NYSE:AMP) , Legg Mason, Inc. (NYSE:LM) and Federated Investors, Inc. (NYSE:FII) beat the respective Zacks Consensus Estimate.

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