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Why Is Principal Financial (PFG) Down 4.4% Since its Last Earnings Report?

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It has been about a month since the last earnings report for Principal Financial Group, Inc. (PFG - Free Report) . Shares have lost about 4.4% in that time frame.

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

Principal Financial Tops Q1 Earnings, Hikes Dividend

Principal Financial’s first-quarter 2018 reported a record operating net income of $1.40 per share, which beat the Zacks Consensus Estimate by 3.7%. Moreover, the bottom line improved 10.2% year over year owing to higher revenues and lower expenses.

Including net realized capital loss of 4 cents per share, net income came in at $1.36, up 14.3% year over year.

Principal Financial delivered record operating profit and assets under management. The company’s investment performance remained solid. 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 5.1% year over year to $2.9 billion. Lower premiums and other considerations attributed to this downside. The top line also missed the Zacks Consensus Estimate of $3.5 billion.

Total expenses decreased 7.9% year over year to $2.4 billion, primarily on lower benefits, claims and settlement expense as well as dividends to policyholders.

Principal Financial’s Asset Under Management (AUM) as of Mar 31, 2018 was a record $673.8 billion, up 8.7% year over year.

Segment Update

Retirement and Income Solution: Revenues declined 20.2% year over year to about $1.2 billion.

Pre-tax operating earnings were declined 4.7% year over year to $232.6 million owing to soft performance at Retirement and Income Solution — Fee business, attributable to lower net investment income and higher operating expenses.

Principal Global Investors: Revenues of $368.5 million were up 6.5% from the prior-year quarter.

Operating earnings increased 10.3% year over year to $110.3 million, attributable to higher management fee and expense control.

Principal International: Revenues increased 19.2% year over year to $383.1 million in the first quarter.

Operating earnings declined 13.8% year over year to $87 million, attributable to unfavorable encaje performance, partially offset by business growth.

U.S. Insurance Solution: Revenues grew nearly 6% year over year to $1 billion.

Operating earnings of $108.6 million were up nearly 26% year over year driven by better performances at both Specialty Benefits Insurance and Individual Life Insurance business.

Corporate: Operating loss of $42 million was narrower than $58.5 million loss incurred a year ago, attributable to lower corporate expenses. The company expects $190-$210 million in operating loss for 2018.

Financial Update

As of Mar 31, 2018, cash and cash equivalents were $2.3 billion, up 52.2% year over year.

At first-quarter end, debt was $3.3 billion, up 2.8% year over year.

As of Mar 31, 2018, book value per share (excluding AOCI other than foreign currency translation adjustment) was $40.83, up 17.2% year over year.

Dividend and Share Repurchase Update

The company paid $147.3 million in dividends and deployed $178.6 million to buy back 2.9 million shares. A sum of $84 million was directed toward acquisitions.

The board of directors of Principal Financial announced a dividend of 52 cents per share for the second quarter of 2018, translating into a 13% rise over the last payout. The same also marks the ninth straight hike.

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

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There has been only one move down in the last two months.

VGM Scores

At this time, PFG has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was also allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

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

The company's stock is suitable solely for value based on our style scores.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise PFG has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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