Principal Financial’s (PFG) fourth quarter operating earnings of 66 cents per share lagged the Zacks Consensus Estimate by 2 cents. Results were ahead of 63 cents earned in the prior-year quarter. Operating earnings were $214.1 million, up by 5% from $203.9 million in the corresponding quarter last year.
Strong performance at Retirement and Investor Services as well as at Principal Global Investors largely drove the year-over-year improvement.
Including net realized capital losses of $37.3 million or 11 cents per share and other after tax adjustments of $22.5 million or 7 cents per share, net income available to common stockholders was $199.3 million or 62 cents per share compared with $141.9 million or 44 cents a year ago. The prior-year quarter included net realized capital losses of $58.8 million or 18 cents per share and other after tax adjustments of $3.2 million or 1 cent per share.
For full year 2010, Principal Financial reported operating earnings of $2.62 per share, lagging the Zacks Consensus Estimate by 2 cents. Results were, however, 7% ahead of $2.45 in 2009. Operating earnings were $844.8 million, up 15% from $733.3 million in 2009.
Including net realized capital losses of $194.2 million or 61 cents per share and other after tax adjustments of $15.7 million or 5 cents per share, net income available to common stockholders was $666.3 million or $2.06 per share compared with $589.7 million or $1.97 a year ago.
Operational Performance
Fourth quarter operating revenues improved 6% year over year to gross $2.11 billion. Results surpassed the Zacks Consensus Estimate of $2.04 billion. An improvement in premium revenue, fee and other revenues as well as net investment income aided the revenue climb. Full year revenue increased 4% year over year.
Principal reported a 9% year-over-year growth in premium to gross $627 million in the quarter. It increased 5% for 2010.
Net investment income in the quarter increased 3% while it increased 3.6% in 2010.
Total expenses increased 6% year over year to $1.8 billion. Increase in benefits, claims and settlement expenses, commissions and compensations contributed to the increase. For full year 2010, total expense increased 2.6% year over year.
Assets under management were $318.8 billion as of December 31, 2010, up 12% from 2009 end and up 4% from prior quarter end. Improved results at three asset management and asset accumulation segments drove the increase.
Book value per share as of December 31, 2010, was $27.82, up 8% from $26.31 as of December 31, 2009.
Segment Update
Retirement and Investor Services: Revenue was $1.1 billion in the fourth quarter, up 8% year over year. The improvement was largely due to higher revenues from “accumulation businesses”. Operating earnings increased 21% year over year to $151 million in the quarter. Double-digit percentage increase in every business line within the segment fueled the increase.
Full year 2010 revenue increased 2% year over year while operating earnings improved 14% from 2009.
Principal Global Investors: Revenues in the quarter were $135.3 million, 12% higher than $120.4 million in the prior-year period, primarily due to higher management fee as well as transaction fees. Operating earnings were $19.2 million up by a whopping 51%, largely driven by an increase in transaction fees and average assets under management.
2010 revenue improved 10% year over year while operating earnings increased 53% from 2009.
Principal International: Revenues were $210.5 million, up 17% from $180.3 million in the prior-year quarter. An increase in assets under management contributed to the growth. Operating earnings decreased 22% year over year to $30.9 million resulting from reduced economic interest in the Brazilian joint venture.
Full year revenue improved 39% while operating earnings increased 15% from 2009.
US Insurance Solution: Revenues declined slightly to $705 million in the quarter. Operating earnings were $52.3 million, down 7% from $56.0 million in the prior-year quarter. Lower earnings at Individual Life largely contributed to the overall decline in operating earnings at the segment.
2010 revenue declined 1% from 2009 while 2010 operating earnings declined 5% year over year.
Dividend
During the fourth quarter, Principal Financial paid an annual dividend of 55 cents per common share. The dividend represents an increase of 10% over 2009.
Peer Comparison
Lincoln National Corp. (LNC), which competes with Principal Financial, reported fourth quarter operating earnings per share of 82 cents, way behind the Zacks Consensus Estimate of 88 cents and 90 cents recorded in the prior-year quarter.
For full year 2010, operating earnings per share of $3.13 lagged the Zacks Consensus Estimate of $3.23 and $3.18 cents recorded in 2009, due to increased share count in the reported year.
Our Take
Principal’s strong franchise within the pension sector, aided by its diversification in both products and geography, positions it to benefit from the gradual recovery of the credit market. Decent capital levels and cost containment measures also augur well, though higher delinquencies in its commercial mortgage portfolio remain a matter of concern.
We maintain our Neutral recommendation on Principal Financial. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the shares over the near term.
LINCOLN NATL-IN (LNC): Free Stock Analysis Report
PRINCIPAL FINL (PFG): Free Stock Analysis Report
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