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Principal Financial Group, Inc. (PFG - Analyst Report) reported first-quarter 2013 net operating earnings of 79 cents per share. The reported result exceeded the Zacks Consensus Estimate by 5.33% and improved 11.3% year over year. Operating income was $233.3 million in the quarter, up 8% year over year.

A surge in fees and other revenues along with higher premiums and other considerations more than offset the impact from lower net investment income and escalation in expenses. In addition, a lower share count buoyed the bottom line of Principal Financial.

Including net realized capital losses of $56.4 million and favorable after tax adjustment due to expenses incurred for extinguishing debt, of $1.4 million net income available to common stockholders was $178.3 million or 61 cents per share, compared with $203.9 million or 68 cents per share a year ago.

The prior-year quarter included net realized capital losses of $9.9 million and other unfavorable after-tax adjustments of $1.5 million.

Operational Performance

Operating revenues of Principal Financial in the first quarter improved 6% to $2.24 billion. The rise was primarily due to an increase in premiums and other considerations and fees and other revenues. Revenues marginally fell short of the Zacks Consensus Estimate of $2.27 billion

Total expenses incurred by Principal Financial escalated 6% year over year to $1.9 billion. Higher commissions, depreciation and amortization, compensation, interest expense primarily contributed to the escalation.

Principal Financial’s assets under management were $456.1 billion as of Mar 31, 2013, up 25.3% year over year.

Book value per share as of Mar 31, 2013, stood at $29.19, up 6% year over year.

Cash flow totaled $6.5 billion in the reported quarter.

Segment Update

Retirement and Investor Services: Revenues in the quarter augmented by nearly 4.5% year over year to $1.1 million.

Operating earnings increased 18.4% year over year to $170 million in the quarter.

Principal Global Investors: Revenues in the quarter were $153.7 million, 11.3% higher than the prior-year period, driven by higher management fees due to growth in AUM supported by positive net cash flow and strong investment performance.

Operating earnings improved 25.3% year over year to $20.3 million. The increase was primarily due to improved revenues and improved pretax margin.

Principal International: Revenues were $247.5 million in the quarter, down 5.7% year over year.

Operating earnings crawled up 1.1% year over year to $45.1 million in the quarter, attributable to benefit from the one month of Cuprum’s earnings and higher AUM.

US Insurance Solution: Revenues were $778 million in the reported quarter, up 11.6% year over year.

Operating income was $35.7 million in the reported quarter, down 28.9% year over year.

Corporate: Operating losses narrowed to $37.3 million from a loss of $38.8 million recorded in the year-ago quarter.

Dividend and Share Repurchase Update

The board of directors of Principal Financial declared a quarterly dividend of 23 cents per share, representing an increase of 10%. The dividend will be payable on Jun 28, 2013 to shareholders of record as of Jun 3, 2013.

Principal Financial repurchased 2.4 million shares at an average price of $31.37 per share in the first quarter of 2013.

Results of Few Other Investment Managers

Ameriprise Financial, Inc. (AMP - Analyst Report) reported first-quarter operating earnings came in at $1.59 per share. The result surpassed the Zacks Consensus Estimate of $1.57 as well as the year-ago earnings of $1.45.

BlackRock, Inc.’s (BLK - Analyst Report) first-quarter 2013 adjusted earnings came in at $3.65 per share. The result surpassed the Zacks Consensus Estimate of $3.59 as well as the year-ago earnings of $3.16.

The Blackstone Group L.P (BX - Analyst Report) reported first-quarter earnings of 55 cents per share, marginally surpassing the Zacks Consensus Estimate of 54 cents. It improved 41% year over year.

Our Take

Increased focus on fee-based revenue sources has been helping Principal Financial earn steadily and return capital to its shareholders through share buybacks and dividends or deploy them in strategic acquisitions.  Its inorganic growth story also looks quite impressive with the ongoing strategic acquisitions. Principal Global Investors, LLC, the investment arm of Principal Financial Group, agreed to purchase 55% shares of Liongate Capital Management in an effort to expand its alternative investment capabilities.

In addition, Principal Financial had a record asset under management in the reported quarter.

Management stated that it intends to focus on the successful integration of Cuprum and search for opportunities to use additional capital in the latter half of the year.

Principal Financial presently carries a Zacks Rank #2 (Buy).

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