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Principal Financial (PFG) Up 1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Principal Financial (PFG - Free Report) . Shares have added about 1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Principal Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Principal Financial Q2 Earnings Beat, Revenues Fall Y/Y

Principal Financial Group, Inc.’s second-quarter 2022 operating net income of $1.65 per share beat the Zacks Consensus Estimate by 18.7%.  The bottom line however decreased 2.9% year over year.

Principal Financial witnessed higher revenues in Principal Global Investors and Principal Global Investors and lower expenses, offset by lower assets under management (AUM).

Behind the Headlines   

Operating revenues decreased 12.6% year over year to $3.1 billion due to lower net investment income and fees and other revenues. Total expenses decreased 11.1% year over year to $2.8 billion due to lower benefits, claims and settlement expenses and dividends to policyholders. Principal Financial’s AUM as of Jun 30, 2022 amounted to $631.7 billion, down 9.4% year over year.

Segment Update

Retirement and Income Solution: Revenues decreased 20% year over year to about $1.3 billion due to lower premiums and other considerations, higher fees and other revenues and net investment income. Pre-tax operating earnings decreased 8.7% year over year to $255.9 million due to lower net revenue, higher DAC amortization expense and impacts from the reinsurance transaction.

Principal Global Investors: Revenues of $463.6 million were up 2.2% from the prior-year quarter, driven by higher fees and other revenues. Pre-tax operating earnings decreased 2.4% year over year to $180 million as higher operating revenues less pass-through expenses were offset by higher operating expenses.

Principal International: Revenues increased 43.4% year over year to $439.1 million in the quarter due to higher net investment income. Operating earnings increased 93.1% year over year to $92.1 million due to higher combined net revenue.

U.S. Insurance Solution: Revenues decreased 23.1% year over year to $908.6 million due to lower net investment income, fees and other revenues. Operating earnings of $151.7 million increased 19.8% year over year, mainly due to improved performance at the Specialty Benefits Insurance business, offset by poor performance at the Individual Life Insurance.

Corporate: Operating loss of $152.9 million was wider than the $82.7 million loss incurred a year ago. This downside was due to higher operating expenses and unfavorable variable investment income.

Financial Update

As of Jun 30, 2022, cash and cash equivalents were $3.2 billion, up 31.3% year over year. At second-quarter end, debt was $4.3 billion, unchanged from 2021-end.
As of Jun 30, 2022, book value per share (excluding AOCI other than foreign currency translation adjustment) was $50.27, up 3.3% year over year.

Dividend and Share Repurchase Update

Principal Financial paid out $161.7 million in dividends and deployed $239.9 million to buy back 2.9 million shares in the quarter under review. The board of directors approved third-quarter dividend of 64 cents per share. The dividend will be paid out on Sep 30, 2022, to shareholders of record as of Sep 8, 2022.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, Principal Financial has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, Principal Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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