Principal Financial Group Inc.(PFG) reported third quarter 2010 operating earnings per share of 68 cents beating Zacks Consensus Estimates of 63 cents. EPS increased 7.4% sequentially and is in line with the same quarter last year.
Operating revenues marginally increased 1.3% year-over-year to $1986.7 million and also failed to beat the Zacks Consensus Estimates of $2234 million.
Management believes Principal Financial has performed well in the quarter reflecting a strong execution in the slowly improving economic environment. The quarter was marked by improved performances of strong net cash flow in Principal Funds, Principal Global Investors and Principal International.
Principal Funds
Principal Funds earnings increased 20% on year-over-year basis to $8.5 million. The increase was driven primarily by a 12% increase of average account values. Operating revenues though decreased 2.8% to $997 million.
As of September 30, 2010, segment assets under management were $168.8 billion compared to $158.8 billion as of Sept. 30, 2009.
Principal Global Investors
Segment operating earnings increased 42.9% from year ago quarter to $15.0 million and was mainly attributable to increased transaction fees and an increase in assets under management.
Unaffiliated assets under management increased to $76.2 billion as on September 30, 2010 from $73.2 billion of September 30, 2009.
Higher management fees and increase in transaction fees resulted in an increase of 6% of operating revenues to $118 million compared with same quarter last year.
Principal International
Principal International had record assets under management of $42.3 billion as on pre-mentioned date and recorded a net cash flow of $1 billion.
Operating earnings were $33.1 million and was the same compared to same quarter previous year.
Operating revenue increased 28.2% to $200.1 million compared to same quarter last year. This was attributable to higher net investment income from inflation linked investments in Latin America, increase in fees on higher assets under management and impact of foreign currency.
Principal ended the quarter with total assets of $143.5 billion and total common equity was $9,353.5 million.
Expectations
Company had positive sales momentum and management expects to carry the trend forward into next quarter. Management expects to finish 2010 with Full Service Accumulation sales 15-20% higher than that of year end sales figure of 2009. Management believes diversified businesses and geography mix; strong balance sheet and continued expense management have and will continue to serve the company better.
Conclusion
Estimates for the quarter have been trending down in the run-up to the earnings release, with 2 analysts increasing estimates in the last 30 days and 14 lowering estimates. The full-year estimate for next year has been trending down in recent days, with no positive revisions in the last thirty days. The current Zacks Consensus Estimate for 2012 of $2.81 is down from $2.94 thirty days ago. The full-year Zacks Consensus Estimate for 2011 also decreased to $2.60 from $2.72 thirty days ago.
We currently have a Zacks #5 rank for Principal Financial which translates into a Strong Sell rating.
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