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Principal Financial (PFG) Q2 Earnings Miss, Dividend Up

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Principal Financial Group, Inc.’s (PFG - Free Report) second-quarter 2018 reported operating net income of $1.35 per share, which missed the Zacks Consensus Estimate by 2.7%. However, the bottom line improved 3.1% year over year owing to lower expenses.

Principal Financial Group, Inc. Price, Consensus and EPS Surprise

Principal Financial delivered growth in assets under management. The company’s investment performance also remained solid. Additionally, expenses reduced on the back of a disciplined expense management. Moreover, the company displayed a balanced approach to capital management.

Behind the Headlines

Operating revenues decreased 3.2% year over year to $3.2 billion. Lower premiums and other considerations induced this downside. The top line also lagged the Zacks Consensus Estimate of $3.5 billion.

Total expenses decreased 3.3% year over year to $2.7 billion, primarily on lower benefits, claims and settlement expense.

Principal Financial’s Asset Under Management (AUM) as of Jun 30, 2018 amounted to a record $666.6 billion, up 6% year over year.

Segment Update

Retirement and Income Solution: Revenues declined 13.8% year over year to about $1.5 billion.

Pre-tax operating earnings dropped 11% year over year to $216.9 million due to soft performance at Retirement and Income Solution — Fee business, attributable to higher operating expenses and lower operating income in Retirement and Income Solution — Spread business, driven by a lower variable investment income and lower reserve gains.

Principal Global Investors: Revenues of $379.6 million were up 6.8% from the prior-year quarter on the back of higher management and performance fees.

Operating earnings increased 10.1% year over year to $127 million owing to growth in operating revenues and cost control.

Principal International: Revenues increased nearly 22% year over year to $389.6 million in the second quarter.

Operating earnings gained 4.7% year over year to $82.1 million, banking on business growth.

U.S. Insurance Solution: Revenues grew 3.4% year over year to $1 billion.

Operating earnings of $109.2 million were up nearly 4.6% year over year, driven by better performances at both Specialty Benefits Insurance and Individual Life Insurance business.

Corporate: Operating loss of $49.5 million was wider than $47.5 million loss incurred a year ago. The company expects $190-$210 million in operating loss for 2018.

Financial Update

As of Jun 30, 2018, cash and cash equivalents were $2.3 billion, up 16.7% year over year.

At second-quarter end, debt was $3.3 billion up from $3.2 billion from year-ago level.

As of Jun 30, 2018, book value per share (excluding AOCI other than foreign currency translation adjustment) was $40.88, up 15.1% year over year.

Dividend and Share Repurchase Update

The company paid $148.5 million in dividends and deployed $196.4 million to buy back 3.4 million shares. A sum of $46 million was directed toward acquisitions.

The board of directors of Principal Financial announced a dividend of 53 cents per share for the second quarter of 2018, translating into a 1.9% rise over the last payout and a 13% increase year over year. The same also marks the 10th straight hike.

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

Zacks Rank

Principal Financial carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Managers

In the second quarter, the bottom line of Ameriprise Financial, Inc. (AMP - Free Report) and Legg Mason, Inc. beat the respective Zacks Consensus Estimate. Bottom-line at Federated Investors, Inc. met expectation.

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