Principal Financial Group’s (PFG) fourth quarter earnings of $200.9 million or 62 cents a share missed the Zacks Consensus Estimate of 65 cents. The company had earned $179.0 million or 69 cents in the year-ago quarter.
The miss was driven by lower-than-expected revenue. Also, the reported quarter had more shares outstanding due to the company’s common stock offering in May 2009.
Including the realized capital losses, Principal reported net income of $141.9 million or 44 cents a share in the quarter, compared to a loss of $7.5 million or 3 cents a share a year ago. Net realized capital losses fell to $59.1 million from $188.9 million reported in the prior-year period.
For full-year 2009, Principal earned $589.7 million or $1.97 per share, up from $425.1 million or $1.63 per share in 2008. Excluding realized capital losses, the company reported operating earnings of $804.1 million or $2.69 per share, compared to $942.7 million or $3.61 per share in 2008. The results were also below the Zacks Consensus Estimate of $2.72 per share.
The stressed economic environment has impacted the company’s results. While consumer confidence remains weak, business and institutional investors continue to proceed with caution. This has impacted sales and net cash flows. However, the improvement in the stock market has provided some relief.
For the reported quarter, Principal reported a decline in premiums to $930.1 million, from $950.3 million in the prior-year quarter. However, the company continued to benefit from its cost containment initiatives. Operating expenses were down $375.6 million or 12% compared to 2008.
Assets under management (AUM) increased 1.5% sequentially and 15.3% year-over-year, driven by improved results at the company’s three asset management and asset accumulation segments.
Book value came in at $23.05 per share, up from $21.85 as of Sep 30, 2009, and $7.45 as of Dec 31, 2008. Operating book value was $26.31 per share as of Dec 31, 2009, flat compared to $26.34 at Sep 30, 2009, and $26.39 at Dec 31, 2008. Results reflected capital infusion from the stock offering combined with improvements in the credit market.
Segment Performance
Operating earnings of the U.S. Asset Accumulation segment were $125.3 million, up 21.9% year-over-year. The segment’s AUM was $159.8 billion, up 0.6% sequentially and 14.9% year-over-year.
Operating earnings of the Global Asset Management segment were $12.7 million, significantly down from $27.0 million in the year-ago quarter. Results in the prior-year period included earnings of $15.6 million (after-tax) from a performance fee (under the terms of the contract, this performance fee is determined every five years). The segment’s AUM was $73.8 billion, up 0.8% sequentially and 5.0% year-over-year.
International Asset Management and Accumulation segment’s operating earnings was $39.5 million, up from $18.4 million in the year-ago quarter, primarily driven by higher fee revenues on higher AUM and improving macroeconomic conditions. The segment’s AUM was $34.6 billion, up 10.2% sequentially and 49.8% year-over-year.
Operating earnings of the Life and Health Insurance segment were $44.6 million, compared to $50.6 million in the year-ago quarter, reflecting higher claim costs. The company also reported a decline in group medical covered members.
Though Principal’s strong franchise within the pension sector positions it well to benefit from improvements in the credit market and economy as a whole, we believe such a recovery will be prolonged as a result of the continuation of the weak economic environment.
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