Principal Financial Group (PFG) reported fourth-quarter 2011 operating earnings per share of 71 cents, lagging behind the Zacks Consensus Estimate by 4 cents. Results, however, exceeded 66 cents earned in the prior-year quarter. Operating earnings were $217.1 million, up 1.4% from $214.1 million in the corresponding quarter last year.
Principal Financial fared well on the heels of double-digit earnings growth in Principal International, Principal Global Investors and U.S. Insurance Solutions. Performance at Retirement and Investor Service businesses remained weak.
Including net realized capital losses of $53.4 million or 17 cents per share, net income available to common stockholders was $164 million or 54 cents per share compared with $199.3 million or 62 cents per share a year ago.
The prior-year quarter included net realized capital losses of $37.3 million or 11 cents per share and other favorable after tax adjustments of $22.5 million or 7 cents per share.
Full year 2011 operating earnings came in at $2.76 per share, falling short of the Zacks Consensus Estimate by 5 cents. Results, however, compared favorably with $2.62 earned in 2010.
Including net realized capital losses of $148.3 million or 46 cents per share and other unfavorable after tax adjustments of $47.8 million or 15 cents a share, net income available to common stockholders was $682 million or $2.15 per share against $666.3 million or $2.06 per share in 2010.
Operational Performance
Fourth quarter operating revenues inched down 0.16% to gross $2.1 billion. Lower net investment income more than offset the increase in premiums and other considerations and fees and other revenues to lead to a decline in overall revenue. Revenue was almost in line with the Zacks Consensus Estimate.
Full year 2011 operating revenue improved 3.5% year over year to $8.3 billion in 2011 and was almost in line with the Zacks Consensus Estimate.
Principal, in the fourth quarter, reported a 1.3% year-over-year growth in premium while full year premium growth was 4.6%.
Fees and other revenues in the quarter increased 5.8% over the prior-year quarter while full year fees and other revenues increased 12.6% over 2010.
Net investment income in the quarter declined 5% year over year while full year net investment income declined 2.7% over 2010.
Total expenses inched up 0.5% year over year to $1.8 billion. Improvement in commissions, amortization of DPAC and compensations contributed to the increase. Full year expense increased 3.4% year over year.
Assets under management were $335 billion as of December 31, 2011, up 5% from 2010 end.
Book value per share as of December 31, 2011, was $29.54, up 6% from $27.82 as of December 31, 2010.
Segment Update
Retirement and Investor Services: Revenues decreased to $1.016 billion in the fourth quarter, from $1.093 billion in the year-ago quarter. The decline was largely attributable to lower revenues for the “guaranteed businesses”.
Full year revenue was $4.07 billion versus $4.12 billion in 2010.
Operating earnings sank to $131.9 million in the quarter from $151 million in the fourth quarter of 2010.
Full year operating earnings were $581.1 million versus $584.4 million in 2010.
Principal Global Investors: Revenues in the quarter were $151.8 million, modestly higher than $135.3 million in the prior-year period, primarily due to higher asset management as well as performance fees.
Full year revenue was $546.3 million versus $481.4 million in 2010.
Operating earnings were $17.5 million, down from $19.2 million, largely due to higher compensation and one-time costs related to acquisition of Origin Asset Management.
Full year operating earnings were $74 million versus $58.5 million in 2010.
Principal International: Revenues were $255.7 million, up from $210.5 million in the prior-year quarter. An increase in assets under management contributed to the growth.
Full year revenue was $909.5 million versus $779.9 million in 2010.
Operating earnings improved to $51.4 million from $30.9 million in the year-ago quarter, driven by the successful integration of the HSBC AFORE acquisition and one-time earnings recognized in the quarter.
Full year operating earnings were $154 million versus $136.9 million in 2010.
US Insurance Solution: Revenues increased to $737.8 million in the quarter form $705 million in the year-ago quarter. The improvement was driven by higher premium and fees in Individual Life and positive trends in both sales and client retention for Specialty Benefits.
Full year revenue was $2.98 billion versus $2.77 billion in 2010.
Operating earnings inched up to $59.3 million in the quarter from $52.3 million in the year-ago quarter.
Full year operating earnings were $215.9 million versus $193.7 million in 2010.
Corporate: Operating losses increased to $43.0 million from loss of $39.3 million recorded in the year-ago quarter, mainly due to lower variable investment income in the holding company.
Full year operating losses were $146.9 million versus $128.7 million in 2010.
Dividend and Share Repurchase
During the reported quarter, Principal exhausted the authorization made in November. The company repurchased 4.1 million shares with 20.9 million shares bought back year to date.
Total amount spent for share buyback in 2011 was $550 million. The company also had paid $215 million in dividends.
Based in Des Moines, Iowa, Principal Financial Group Inc. provides an expansive range of retirement savings, investment and insurance products and services through its various subsidiaries. Lincoln National Corporation (LNC), which competes with Principal Financial, is scheduled to release its results after the market closes on February 8, 2012.
We retain our Neutral recommendation on Principal Financial. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.
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