Principal Financial CEO Discusses Q3 2010 Results – Earnings Call Transcript

Principal Financial Group Inc. (

PFG

)

Q3 2010 Earnings Call Transcript

November 2, 2010 20:00 am ET

Executives

John Egan – VP, IR

Larry Zimpleman – Chairman, President & CEO

Terry Lillis – SVP & CFO

Dan Houston – President, Retirement, Insurance and Financial Services

Jim McCaughan – President, Global Asset Management

Analysts

John Nadel – Sterne, Agee

Jimmy Bhullar – JPMorgan

Thomas Gallagher – Credit Suisse

Randy Binner – FBR Capital Markets

Ed Spehar – Bank of America-Merrill Lynch

Mark Finkelstein – Macquarie

Eric Berg – Barclays Capital

Colin Devine – Citi

Christopher Giovanni – Goldman Sachs

Presentation

Operator

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» The Principal Financial Group Q3 2009 Earnings Call Transcript

Good morning and welcome to the Principal Financial Group third quarter 2010 financial results conference call. There will be a question-and-answer period after the speakers have completed their prepared remarks.

I would now like to turn the conference call over to Mr. John Egan, Vice President of Investor Relations.

John Egan

Thank you and good morning. Welcome to the Principal Financial Group’s third quarter earnings conference call. As always, our earnings release, financial supplement and additional investment portfolio detail are available on our Web site at www.principal.com/investor.

Following the reading of the Safe Harbor provisions, CEO, Larry Zimpleman, and CFO, Terry Lillis, will deliver some prepared remarks. And then we’ll open up the call for questions. Others available for the Q&A are Dan Houston, U.S. Asset Accumulation and U.S. Insurance Solutions; Jim McCaughan, Principal Global Investors; Norman Sorensen, Principal International; and Julia Lawler, our Chief Investment Officer.

Some of the comments made during the conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The company does not revise or update them to reflect new information, subsequent events or changes in strategy. Risks and uncertainties that could cause actual results to differ materially from those expressed or implied are discussed in the company’s most recent Annual Report on Form 10-K and quarterly report on Form 10-Q filed by the company with the Securities and Exchange Commission.

Before I turn the call over to Larry, I’d like to remind everyone that the Principal Financial Group will host its 2010 Investor Day, the afternoon of December 9 at the St. Regis Hotel in Midtown Manhattan. We’ll give a detail look at our lines of business, our strategy in the U.S. and in international markets where we operate and discuss our vision for the future. We hope everyone can attend or listen via the webcast. Additionally, we will announce 2011 EPS guidance prior to the Investor Day through a press release and conference call. You will receive details about the call shortly. Larry?

Larry Zimpleman

Thanks, John and welcome to everyone on the call. I will focus my comments on three areas this morning. First, results for the third quarter and the first nine months of 2010; second, thoughts on capital management and third, progress on implementation of our strategy during these challenging times. Terry will then cover financial results in more detail following my comments.

Overall, we are pleased with the performance of our businesses in third quarter and see increasing signs of growth across the businesses. We saw a sequential improvement in operating earnings, assets under management, book value per share and net income.

Operating earnings for the third quarter were $219 million, up 15% from last quarter and up 15% from the year ago quarter on a normalized basis. Year-to-date earnings increased 19% over last year, primarily due to higher assets under management and our ongoing expense discipline.

During the quarter, we saw assets under management grow by over 7% and had $2.3 billion of positive net cash flow from our growth engines. To remind you, we define the accumulation businesses within U.S. Asset Accumulation, Principal Global Investors and Principal International as our higher growth engines.

As we look deeper at the business segments, U.S. Asset Accumulation financial results were solid and the sales picture continues to improve. We view full service accumulation year-to-date sales of $3.5 billion as positive in an environment that remains challenging.

As a reminder, we said Full Service Accumulation sales will be higher in the second half of this year and we remain confident that we will finish 2010 with full year sales 15% to 20% above 2009 full year results of $5 billion.

Total retirement suite continues to set us apart from competitors contributing 60% of total Full Service Accumulation sales for 2010. Principal Funds continues to see very strong growth as a result of having some new and innovative products that appeal to investors. Principal Funds generated a record $790 million of net cash flow for the quarter.

An example of these innovative products is our Global Diversified Income Fund. Still in its infancy at less than two years old, the fund reached $1 billion in assets under management this quarter. Fewer than 3% of all funds registered at the same time have reached the $1 billion milestone.

The market continues to search for yield putting our high yield and preferred security strategies in high demand and showcasing our retirement asset allocation expertise all 11 of our Target Date Fund options have top quartile Morningstar peer group performance for the one year period.

Principal Global Investors saw a return to a somewhat more normal quarter, positive unaffiliated net cash flow of $800 million highlights our success in attracting money to specialize investments options such as real estate and currency as well as in high yield and international equities. While the number of institutional clients seeking mandates is still depressed, we are seeing activity build each quarter.

Shifting our focus to international markets, Principal International had an outstanding third quarter with strong net cash flow and investment performance leading to a record $42 billion in assets under management.

Despite a lower economic interest in BrasilPrev, Principal International remains a strong growth driver as we continue to deliver our retirement and asset management expertise in key emerging markets. Our reach in these markets is extensive.

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