Earnings Call: Principal Financial Group Reports Steady Growth in Q3 2024

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Earnings Call: Principal Financial Group Reports Steady Growth in Q3 2024

Principal Financial Group (PFG) reported strong performance for the third quarter of 2024 on October 25. Non-GAAP operating earnings were $412 million, or $1.76 per diluted share, while adjusted earnings per share rose to $2.05. This reflects a 12% increase compared to the same period last year. The company's total assets under management (AUM) increased by 6% to reach $741 billion, driven by strong market performance and a 5% rise in net revenues. Principal Financial Group also announced a dividend increase and continued capital distribution to shareholders, maintaining a positive outlook for the remainder of the year.

Key Points

  • Principal Financial Group's adjusted earnings per share rose 12% year-over-year to $2.05.
  • Total AUM increased by 6% quarter-over-quarter to $741 billion.
  • The company returned $416 million to shareholders through dividends and share repurchases.
  • The retirement segment's revenues and earnings exceeded guidance, with recurring deposits up 10%.
  • Principal International saw strong net cash flows with an 8% increase in AUM.
  • Specialty Benefits experienced growth in premiums and fees of over 6%.
  • The company is on track to achieve a return on equity target of 14% to 16% by 2025.

Company Outlook Principal Financial Group expects full-year earnings per share growth to be in the range of 9% to 12%, in line with its 2024 guidance. The firm maintains a free cash flow production target of 75% to 85% for the year. A dividend of $0.73 per share was announced for the fourth quarter, representing a 9% increase from the prior year. The company anticipates strong cash flow in Q4, which will contribute to the full-year target.

Negative Highlights The company reported a net loss of $220 million for Q3. Principal Asset Management faced outflows in PGI. Performance fees from real estate transactions year-to-date remained under normal levels at $7 million. The Life Insurance segment is trending below the expected operating margin of 13% to 15%.

Positive Highlights Strong market performance supported a 6% quarter-over-quarter increase in AUM. Recurring deposits in the retirement segment increased 10% year-over-year. Principal International achieved record operating earnings of $121 million. Retirement risk transfer sales nearly reached $500 million in Q3, with a full-year target of $3 billion.

Misses Negative impacts from foreign exchange translation and lower variable investment income due to negative private equity returns. The effective tax rate was at the lower end of the guidance range of 17% to 20%. The Pension Risk Transfer (PRT) business experienced a slight compression in fee income rates, decreasing by 2 basis points year-over-year.

Q&A Highlights Approximately 75% of participant pull-throughs are attributed to strong market performance. Plans for retirement income solutions are expected to roll out by 2025. The company is focusing on strategic initiatives to enhance net cash flows across different segments.

In conclusion, Principal Financial Group demonstrated resilience and growth in Q3 2024, showcasing strong performance in its Retirement and International segments. Despite facing some challenges, the company remains optimistic about its capital distribution strategies and the upcoming Investor Day event, where it will discuss future growth opportunities.