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Why Is Principal Financial (PFG) Down 13% Since Last Earnings Report?

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It has been about a month since the last earnings report for Principal Financial (PFG - Free Report) . Shares have lost about 13% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Principal Financial due for a breakout? 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 and Revenues Beat

Principal Financial's second-quarter 2019 operating net income of $1.52 per share beat the Zacks Consensus Estimate by 8.6%. Also, the bottom line increased 12.6% year over year.

Principal Financial recorded growth in assets under management (AUM). The company’s investment performance also remained solid. It was able to maintain disciplined expense management. Moreover, the company displayed a balanced approach to capital management.

Behind the Headlines

Operating revenues rose 25.5% year over year to nearly $4 billion. Higher premiums and other considerations plus net investment income drove this upside. The top line beat the Zacks Consensus Estimate by 4.2%.

Total expenses increased 29.5% year over year to $3.5 billion due to higher benefits, claims and settlement expenses as well as operating expenses.

Principal Financial’s AUM as of Jun 30, 2019 was a record $696.2 billion, up 4.4% year over year.

Segment Update

Retirement and Income Solution: Revenues surged 48.9% year over year to about $2.2 billion.

Pre-tax operating earnings increased 12.6% year over year to $256.2 million on account of solid performance at Retirement and Income Solution — Fee as well as Spread business.

Principal Global Investors: Revenues of $359.5 million were down 5.3% from the prior-year quarter.

Operating earnings declined 11% year over year to $115.6 million due to lower revenues and continued investments in the business.

Principal International: Revenues increased 5.6% year over year to $411.6 million in the quarter.

Operating earnings increased 8% year over year to $93.2 million driven by growth in the business and favorable encaje performance, partially offset by foreign currency translation headwinds and inflation in Latin America.

U.S. Insurance Solution: Revenues grew 8.3% year over year to $1.1 billion.

Operating earnings of $146.3 million increased 29.1% year over year, driven by sturdy performance at Specialty Benefits Insurance business.

Corporate: Operating loss of $983.1 million was wider than $70.7 million loss incurred a year ago. This downside was due to higher expenses.

Financial Update

As of Jun 30, 2019, cash and cash equivalents were $3.3 billion, up 41.6% year over year.

At second-quarter end, debt was $3.3 billion, up 16.9% year over year.

As of Jun 30, 2019, book value per share (excluding AOCI other than foreign currency translation adjustment) was $43.75, up 7% year over year.

Capital Deployment

Principal Financial paid $154.4 million in dividends.

The company committed $1.2 billion to acquire the Wells Fargo Institutional Retirement & Trust business.

The board of directors approved third-quarter dividend of 55 cents per share, up 4% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Principal Financial has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was 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.


Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, Principal Financial has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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