Upgrade to SI Premium - Free Trial

Principal Financial Group® Announces Third Quarter 2016 Results

October 27, 2016 4:16 PM

Company Also Announces Increase to Common Stock Dividend

Company Highlights

DES MOINES, Iowa--(BUSINESS WIRE)-- Principal Financial Group, Inc. (NYSE: PFG) today announced results for third quarter 2016.

After excluding the significant variances in Exhibit 1, operating earnings increased 14 percent over third quarter 2015.

“I’m very pleased with our results for the quarter but more importantly, with our results through the first nine months of the year. We’ve generated more than $18 billion in net cash flow reflecting strong sales and retention. We’ve also increased assets under management by nearly $70 billion, building solid earnings momentum,” said Dan Houston, chairman, president and CEO. “Throughout the year, we’ve continued to deliver strong investment performance, expand our solution set, and strengthen relationships with customers and distributors. Our growth reflects continued progress helping customers – individuals, small to medium sized businesses and institutions – address real issues such as risk protection, income adequacy in retirement and yield in a low rate environment.”

“Our performance also reflects strong expense discipline,” added Terry Lillis, chief financial officer. “We’ve been able to keep expenses flat year-to-date, while at the same time increasing our investment in technology, product development and brand. With revenue under pressure, this discipline has contributed to our ability to deploy capital to create long-term shareholder value. Through the first nine months of the year, we’ve reduced weighted average common shares outstanding by 4.8 million shares. Today we announced our third sequential quarterly dividend increase. We will continue to have a balanced approach to capital deployment. There will be quarterly variability based on the timing of opportunities, but still believe we will close 2016 within our $800 million to $1 billion guided range.”

Other third quarter highlights

Business

Capital

Net Income

Segment Results

Retirement and Income Solutions - Fee

(in millions except percentages or otherwise noted) Quarter Trailing Twelve Months
3Q16 3Q15 % Change 3Q16 3Q15 % Change

Pre-tax operating earnings7

$130.9 $83.6 57% $494.1 $507.5 (3)%

Net revenue8

$364.8 $391.5 (7)% $1,499.6 $1,580.9 (5)%

Pre-tax return on net revenue9

35.9% 21.4%

32.9%* 32.1%*

*Pre-tax return on net revenue – Excluding the third quarter actuarial assumption reviews, the trailing twelve month pre-tax return on net revenue was 33.8 percent for third quarter 2016 and 34.4 percent for third quarter 2015.

Retirement and Income Solutions - Spread

(in millions except percentages or otherwise noted) Quarter Trailing Twelve Months
3Q16 3Q15 % Change 3Q16 3Q15 % Change
Pre-tax operating earnings $76.0 $49.9 52% $275.7 $244.2 13%
Net revenue $122.0 $97.2 26% $466.8 $440.7 6%
Pre-tax return on net revenue 62.3% 51.3% 59.1%* 55.4%*

*Pre-tax return on net revenue – Excluding the third quarter actuarial assumption reviews, the trailing twelve month pre-tax return on net revenue was 60.1 percent for third quarter 2016 and 54.0 percent for third quarter 2015.

Principal Global Investors

(in millions except percentages or otherwise noted) Quarter Trailing Twelve Months
3Q16 3Q15 % Change 3Q16 3Q15 % Change
Pre-tax operating earnings $112.9 $95.4 18% $412.1 $386.6 7%

Adjusted revenue10

$304.6 $284.2 7% $1,187.2 $1,162.4 2%

Pre-tax return on adjusted revenue11

37.6% 34.0% 35.1% 33.6%
Total PGI assets under management (billions) $397.3 $354.0 12%
Institutional assets under management (billions) $135.2 $120.2 12%

Principal International

(in millions except percentages or otherwise noted) Quarter Trailing Twelve Months
3Q16 3Q15 % Change 3Q16 3Q15 % Change
Pre-tax operating earnings

$84.2

$51.0

65% $289.4 $281.5 3%

Combined12 net revenue (at PFG share)

$215.6

$187.7

15% $789.0 $778.1 1%

Combined pre-tax return on net revenue (at PFG share) 39.1% 27.2% 36.7%* 36.2%
Assets under management (billions)

$136.3

$106.2

28%

*Combined pre-tax return on net revenue (at PFG share) – Excluding the third quarter actuarial assumption review, the trailing twelve month combined pre-tax return on net revenue (at PFG share) was 37.5 percent for third quarter 2016.

Specialty Benefits Insurance

(in millions except percentages or otherwise noted) Quarter Trailing Twelve Months
3Q16 3Q15 % Change 3Q16 3Q15 % Change
Pre-tax operating earnings $73.9 $65.4 13% $235.8 $207.7 14%
Premium and fees $469.3 $429.6 9% $1,822.4 $1,699.7 7%

Pre-tax return on premium and fees13

15.7% 15.2% 12.9%* 12.2%*
Incurred loss ratio 65.0% 60.3% 63.7% 63.3%

*Pre-tax return on premium and fees – Excluding the third quarter actuarial assumption reviews, the trailing twelve month pre-tax return on premium and fees was 12.4 percent for third quarter 2016 and 11.5 percent for third quarter 2015.

Individual Life Insurance

(in millions except percentages or otherwise noted) Quarter Trailing Twelve Months
3Q16 3Q15 % Change 3Q16 3Q15 % Change
Pre-tax operating earnings $(3.7) $107.5 (103)% $105.1 $218.3 (52)%
Premium and fees $241.0 $239.2 1% $986.2 $961.3 3%
Pre-tax return on premium and fees (1.5)% 44.9% 10.7%* 22.7%*

*Pre-tax return on premium and fees – Excluding the third quarter actuarial assumption reviews, the trailing twelve month pre-tax return on premium and fees was 14.9 percent for third quarter 2016 and 15.9 percent for third quarter 2015.

Corporate

(in millions except percentages or otherwise noted) Quarter Trailing Twelve Months
3Q16 3Q15 % Change 3Q16 3Q15 % Change
Pre-tax operating losses $(57.8) $(54.0) (7)% $(220.4) $(186.8) (18)%

Exhibit 1

Principal Financial Group
Significant variances reflected in Operating Earnings
(per diluted share)
Three Months Ended,
09/30/16* 09/30/15
RIS – Fee
Annual actuarial assumption review ($0.06) ($0.08)
Variable investment income $0.03
Additional expense recognition due to decline in markets ($0.04)
RIS – Spread
Annual actuarial assumption review ($0.01) $0.02
Variable investment income $0.03 ($0.01)
Additional expense recognition due to decline in markets ($0.01)
Principal International
Annual actuarial assumption review ($0.02)
Actual vs expected encaje returns $0.02 ($0.02)
Impairment of intangible assets within our Brazil mutual fund business ($0.04)
Higher than expected Latin American inflation and variable investment income in Chile $0.03
Specialty Benefits
Annual actuarial assumption review $0.02 $0.03
Variable investment income $0.02
Individual Life
Annual actuarial assumption review ($0.10) $0.14
Total ($0.07) $0.02

* Income statement detail of the 3Q16 significant variances and a comparison of quarterly operating earnings excluding significant variances for third quarter 2016 compared to the year ago quarter is available on our website.

Forward looking and cautionary statementsCertain statements made by the company which are not historical facts may be considered forward-looking statements, including, without limitation, statements as to operating earnings, net income available to common stockholders, net cash flows, realized and unrealized gains and losses, capital and liquidity positions, sales and earnings trends, and management’s beliefs, expectations, goals and opinions. The company does not undertake to update these statements, which are based on a number of assumptions concerning future conditions that may ultimately prove to be inaccurate. Future events and their effects on the company may not be those anticipated, and actual results may differ materially from the results anticipated in these forward-looking statements. The risks, uncertainties and factors that could cause or contribute to such material differences are discussed in the company’s annual report on Form 10-K for the year ended Dec. 31, 2015, and in the company’s quarterly report on Form 10-Q for the quarter ended June 30, 2016, filed by the company with the U.S. Securities and Exchange Commission, as updated or supplemented from time to time in subsequent filings. These risks and uncertainties include, without limitation: adverse capital and credit market conditions may significantly affect the company’s ability to meet liquidity needs, access to capital and cost of capital; conditions in the global capital markets and the economy generally; volatility or declines in the equity, bond or real estate markets; changes in interest rates or credit spreads or a sustained low interest rate environment; the company’s investment portfolio is subject to several risks that may diminish the value of its invested assets and the investment returns credited to customers; the company’s valuation of investments and the determination of the amount of allowances and impairments taken on such investments may include methodologies, estimations and assumptions that are subject to differing interpretations; any impairments of or valuation allowances against the company’s deferred tax assets; the company’s actual experience could differ significantly from its pricing and reserving assumptions; the pattern of amortizing the company’s DAC and other actuarial balances on its universal life-type insurance contracts, participating life insurance policies and certain investment contracts may change; the company may not be able to protect its intellectual property and may be subject to infringement claims; the company’s ability to pay stockholder dividends and meet its obligations may be constrained by the limitations on dividends or distributions Iowa insurance laws impose on Principal Life; changes in laws, regulations or accounting standards; results of litigation and regulatory investigations; from time to time the company may become subject to tax audits, tax litigation or similar proceedings, and as a result it may owe additional taxes, interest and penalties in amounts that may be material; applicable laws and the company’s certificate of incorporation and by-laws may discourage takeovers and business combinations that some stockholders might consider in their best interests; competition from companies that may have greater financial resources, broader arrays of products, higher ratings and stronger financial performance; a downgrade in the company’s financial strength or credit ratings; changes in investor preferences; inability to attract and retain qualified employees and sales representatives and develop new distribution sources; international business risks; fluctuations in foreign currency exchange rates; the company may need to fund deficiencies in its “Closed Block” assets that support participating ordinary life insurance policies that had a dividend scale in force at the time of Principal Life’s 1998 conversion into a stock life insurance company; the company’s reinsurers could default on their obligations or increase their rates; risks arising from acquisitions of businesses; and a computer system failure or security breach could disrupt the company’s business and damage its reputation.

Use of Non-GAAP Financial MeasuresThe company uses a number of non-GAAP financial measures that management believes are useful to investors because they illustrate the performance of normal, ongoing operations, which is important in understanding and evaluating the company’s financial condition and results of operations. They are not, however, a substitute for U.S. GAAP financial measures. Therefore, the company has provided reconciliations of the non-GAAP measures to the most directly comparable U.S. GAAP measure at the end of the release. The company adjusts U.S. GAAP measures for items not directly related to ongoing operations. However, it is possible these adjusting items have occurred in the past and could recur in future reporting periods. Management also uses non-GAAP measures for goal setting, as a basis for determining employee and senior management awards and compensation, and evaluating performance on a basis comparable to that used by investors and securities analysts.

Earnings Conference CallOn Friday, Oct. 28, 2016, at 10:00 a.m. (ET), Chairman, President and Chief Executive Officer Dan Houston and Executive Vice President and Chief Financial Officer Terry Lillis will lead a discussion of results and the impacts on future prospects, asset quality and capital adequacy during a live conference call, which can be accessed as follows:

The company’s financial supplement, income statement details of the third quarter 2016 actuarial assumption review and other significant variances, and a comparison of quarterly operating earnings excluding significant variances for third quarter 2016 compared to the year ago quarter are currently available at principal.com/investor, and may be referred to during the call. Other slides that will be referenced during the call will be available at principal.com/investor approximately one-half hour prior to call start time.

About Principal®14Principal helps people and companies around the world build, protect and advance their financial well-being through retirement, insurance and asset management solutions that fit their lives. Our employees are passionate about helping clients of all income and portfolio sizes achieve their goals – offering innovative ideas, investment expertise and real-life solutions to make financial progress possible. To find out more, visit us at principal.com.

Summary of Segment and Principal Financial Group, Inc. Results

Segment Pre-Tax Operating Earnings (Losses):

(in millions)
Three Months Ended, Trailing Twelve Months,
9/30/16 9/30/15 9/30/16 9/30/15
Retirement and Income Solutions $ 206.9 $ 133.5 $ 769.8 $ 751.7
Principal Global Investors 112.9 95.4 412.1 386.6
Principal International 84.2 51.0 289.4 281.5
U.S. Insurance Solutions 70.2 172.9 340.9 426.0
Corporate (57.8 ) (54.0 ) (220.4 ) (186.8 )
Pre-Tax Operating Earnings $ 416.4 $ 398.8 $ 1,591.8 $ 1,659.0
Income taxes 80.7 81.8 329.5 334.7
Preferred stock dividends 0.0 0.0 0.0 24.8
Excess of redemption value over carrying value of preferred shares redeemed 0.0 0.0 0.0 8.2
Operating Earnings* $ 335.7 $ 317.0 $ 1,262.3 $ 1,291.3
Net realized capital losses, as adjusted (27.5 ) (16.5 ) (8.2 ) (139.4 )
Other after-tax adjustments 0.0 (0.1 ) (2.0 ) 74.2
Net income available to common stockholders $ 308.2 $ 300.4 $ 1,252.1 $ 1,226.1

Per Diluted Share
Three Months Ended, Nine Months Ended,
9/30/16 9/30/15 9/30/16 9/30/15
Operating Earnings $ 1.15 $ 1.06 $ 3.28 $ 3.24
Net realized capital gains (losses), as adjusted (0.09 ) (0.05 ) 0.13 (0.29 )
Other after-tax adjustments 0.00 0.00 0.00 0.25
Net income $ 1.06 $ 1.01 $ 3.41 $ 3.20
Weighted-average diluted common shares outstanding 291.4 298.5 292.8 298.5

*Operating earnings versus U.S. GAAP (GAAP) net income available to common stockholdersManagement uses operating earnings, which is a non-GAAP financial measure that excludes the effect of net realized capital gains and losses, as adjusted, and other after-tax adjustments the company believes are not indicative of overall operating trends, for goal setting, as a basis for determining employee and senior management awards and compensation, and evaluating performance on a basis comparable to that used by investors and securities analysts. Note: it is possible these adjusting items have occurred in the past and could recur in future reporting periods. While these items may be significant components in understanding and assessing our consolidated financial performance, management believes the presentation of operating earnings enhances the understanding of results of operations by highlighting earnings attributable to the normal, ongoing operations of the company’s businesses.

Selected Balance Sheet Statistics
Period Ended,
9/30/2016 12/31/2015
Total assets (in billions) $

230.4

$

218.7

Stockholders’ equity (in millions) $

10,863.8

$

9,377.4

Total common equity (in millions) $

10,794.6

$

9,311.6

Total common equity excluding accumulated other comprehensive income (AOCI) other than foreign currency translation adjustment (in millions)

$

9,667.7

$

9,045.9

End of period common shares outstanding (in millions) 287.7 291.4
Book value per common share $ 37.52 $ 31.95
Book value per common share excluding AOCI other than foreign currency translation adjustment $

33.60

$ 31.04
Principal Financial Group, Inc.
Reconciliation of Non-GAAP Financial Measures to U.S. GAAP
(in millions, except as indicated)
Period Ended,
9/30/2016 12/31/2015
Stockholders’ Equity, Excluding AOCI Other Than Foreign Currency Translation Adjustment, Available to Common Stockholders:
Stockholders’ equity, excluding AOCI other than foreign currency translation adjustment, available to common stockholders $

9,667.7

$

9,045.9

Net unrealized capital gains

1,553.1

715.9
Net unrecognized postretirement benefit obligation

(426.2

)

(450.2

)

Stockholders’ equity available to common stockholders

10,794.6

9,311.6

Noncontrolling interest 69.2 65.8
Stockholders’ equity $

10,863.8

$

9,377.4

Book Value Per Common Share, Excluding AOCI Other Than Foreign Currency Translation Adjustment:
Book value per common share, excluding AOCI other than foreign currency translation adjustment $

33.60

$ 31.04
Net unrealized capital gains

5.40

2.46
Net unrecognized postretirement benefit obligation

(1.48

)

(1.55

)

Book value per common share including AOCI $ 37.52 $ 31.95
Principal Financial Group, Inc.
Reconciliation of Non-GAAP Financial Measures to U.S. GAAP
(in millions)
Three Months Ended, Trailing Twelve Months,
9/30/2016 9/30/2015 9/30/2016 9/30/2015
Income Taxes:
Income taxes

80.7

81.8

329.5

334.7

Tax expense (benefit) related to net realized capital gains (losses), as adjusted

(19.4)

0.9

(28.6)

(52.7)

Tax benefit related to other after-tax adjustments -

(0.1)

(1.0)

(62.4)

Certain adjustments related to equity method investments and noncontrolling interest

(18.0)

(14.3)

(62.4)

(55.8)

Total GAAP income taxes

43.3

68.3

237.5

163.8

Net Realized Capital Gains (Losses):
Net realized capital losses, as adjusted

(27.5)

(16.5)

(8.2)

(139.4)

Certain derivative and hedging-related adjustments

24.2

34.2

105.9

106.7

Amortization of DAC and other actuarial balances

80.8

28.6

119.9

50.9

Certain market value adjustments of embedded derivatives

(46.4)

1.1

(51.4)

3.2

Certain adjustments related to sponsored investment funds

(1.7)

(0.5)

(5.8)

(0.5)

Capital gains (losses) distributed

17.4

(12.9)

16.0

(11.7)

Certain adjustments related to equity method investments

0.1

-

0.3

-
Noncontrolling interest capital gains

16.8

3.7

23.3

6.5

Tax impacts

(19.4)

0.9

(28.6)

(52.7)

Recognition of front-end fee revenues

(0.2)

(0.1)

(0.4)

(0.3)

Net realized capital losses associated with exited group medical insurance business -

(0.1)

-

(0.1)

Certain market value adjustments to fee revenues

0.1

-

2.4

1.1

GAAP net realized capital gains (losses)

44.2

38.4

173.4

(36.3)

Other After-Tax Adjustments:
Exited group medical insurance business:
Pre-tax $ -

(0.2)

(3.0)

(1.1)

Tax -

0.1

1.0

0.4

Impact of a court ruling on some uncertain tax positions:
Pre-tax - - -

15.1

Tax - - -

(45.4)

Change in deferred tax balances related to merged Chilean entities:
Tax - - -

105.2

Total other after-tax adjustments $ -

(0.1)

(2.0)

74.2

Principal Financial Group, Inc.

Principal International Combined Net Revenue (at PFG Share) Reconciliation

(in millions)

Three Months Ended, Trailing Twelve Months,
9/30/2016 9/30/2015 9/30/2016 9/30/2015
Combined net revenue (at PFG share) $

215.6

$

187.7

$

789.0

$

778.1

Less:
Combined operating expenses (at PFG share) 131.4 136.7 499.6 496.6
Pre-tax operating earnings $

84.2

$

51.0

$

289.4

$

281.5

1 Use of non-GAAP financial measures is discussed in this release after segment results. Operating earnings for total company is after tax.

2 Represents the percentage of Principal mutual funds, separate accounts and collective investment trusts (CITs) in the top two Morningstar quartiles.

3 Retirement and Income Solutions (RIS) - Fee includes Full Service Accumulation and Individual Variable Annuities.

4 Principal Global Investors (PGI) includes Principal Funds.

5 Constant currency basis = prior period results translated using foreign exchange rates from the current period.

6 Premium and fees = premiums and other considerations plus fees and other revenues.

7 Pre-tax operating earnings = operating earnings before income taxes and after noncontrolling interest.

8 Net revenue = operating revenues less benefits, claims and settlement expenses less dividends to policyholders.

9 Pre-tax return on net revenue = pre-tax operating earnings divided by net revenue.

10 Adjusted revenue = operating revenues less commission expense.

11 Pre-tax return on adjusted revenue = pre-tax operating earnings, adjusted for noncontrolling interest divided by adjusted revenue.

12 Combined basis = all Principal International companies at 100 percent. The company has determined combined net revenue (at PFG share) is more representative of underlying net revenue growth for Principal International as it reflects our proportionate share of consolidated and equity method subsidiaries. In addition, using this net revenue metric provides a more meaningful representation of our profit margins.

13 Pre-tax return on premium and fees = pre-tax operating earnings divided by premium and fees.

14 Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.

Principal Financial Group, Inc.

Media contact:

Erica Jensen, 515-362-0049

[email protected]

or

Investor contact:

John Egan, 515-235-9500

[email protected]

Source: Principal Financial Group, Inc.

Categories

Press Releases

Next Articles