Principal Financial Group, Inc. Q1 2010 Earnings Call Transcript - TheStreet

Principal Financial Group, Inc. Q1 2010 Earnings Call Transcript

Principal Financial Group, Inc. Q1 2010 Earnings Call Transcript
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Principal Financial Group, Inc. (PFG)

Q1 2010 Earnings Call

May 4, 2010 10:00 am ET

Executives

John Egan - Vice President, Investor Relations

Larry Zimpleman – Chief Executive Officer

Terry Lillis - Chief Financial Officer

Dan Houston - U.S. Asset Accumulation and Life and Health Insurance

Jim McCaughan - Global Asset Management

Norman Sorensen - International Asset Management and Accumulation

Julia Lawler - Chief Investment Officer

Analysts

Steven Schwartz - Raymond James

Andrew Kligerman - UBS

Jimmy Bhullar - JPMorgan

Suneet Kamath - Sanford C. Bernstein & Co. Llc

Ed Spehar - Banc of America/Merrill Lynch

Randy Binner - FBR Capital Markets & Co.

John Nadel - Sterne Agee & Leach

Thomas Gallagher - Credit Suisse

Presentation

Operator

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

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

John Egan

Thank you. Good morning and welcome to the Principal Financial Group's quarterly conference call. As always if you don't already have a copy, our earnings release, financial supplement and additional investment portfolio detail can be found on our website at www.principal.com/investor. Following a reading of the Safe Harbor provision, CEO, Larry Zimpleman; and CFO, Terry Lillis will deliver some prepared remarks. Then we'll open up for questions.

Others available for the Q&A are Dan Houston, U.S. Asset Accumulation and Life and Health Insurance, Jim McCaughan, Global Asset Management, Norman Sorensen, International Asset Management and Accumulation and Julia Lawler, Chief Investment Officer.

Some of the comments made during this 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 filed by the company with the Securities and Exchange Commission. Now I’d like to turn the call over to Larry.

Larry Zimpleman

Thanks John and good morning to everyone on the call. As most of you probably already know, John Egan recently joined The Principal as our new Investor Relations Officer. He is replacing Tom Graf who will be retiring later this month after 38 years of service with the organization. I’d like to take this opportunity to thank Tom for his significant contributions over the course of his career and to welcome John to the company.

Moving to results, first quarter was a very solid start to the year for The Principal as we delivered our best operating earnings quarter in two years and our best net income quarter in 2.5 years. Each of our growth engines delivered strong improvement in assets under management which coupled with ongoing expense discipline produced strong operating leverage.

It was a quarter in which the continuous implementation of our strategy even during the crisis began to show positive results and a quarter in which our investment portfolio continued to perform well and in line with our expectations.

Compared to the same period a year ago, we achieved strong improvement across a range of key measures. At $256 million, operating earnings were up $92 million or 56%, driving earnings per share up 25%. Net income was up $78 million or 69% as realized capital losses remain manageable and continue to emerge as expected.

Assets under management were up $57 billion or 24% to $293 billion. As of quarter end, we had recovered more than three-fourths of the drop in assets under management from our high as of yearend 2007 to our low on March 31, 2009.

Book value, including other comprehensive income per share, was up 212%. This reflects continued improvement in net unrealized losses including nearly $1 billion of pretax improvement in the first quarter for fixed maturity securities primarily from narrowing credit spreads.

In addition, on a sequential basis, total company operating return on equity improved to 11.5%, up 90 basis points from year end after improving 40 basis points in the fourth quarter. While down from a year ago, this reflects our May 2009 equity raise, the full impact of which will be realized next quarter.

Overall, across a broad range of measures, from the bottom line measures of operating earnings and net income, to top line items like sales, flows, and assets under management, results are emerging in line with or better than our expectations for the businesses.

While we’re benefiting from improvement in the credit and equity markets, we believe the results demonstrate continued strong execution of our diversified business strategy. This has enabled us to deliver very solid results even as high unemployment continues to affect each of our employee benefit businesses.

As the economy improves we expect to see an acceleration of our growth given that small and medium businesses have historically been the primary source of job creation. Terry will follow my comments with further detail on the quarter including a discussion of the investment portfolio. I’ll focus my comments on execution, our ongoing progress implementing our strategy to grow our asset accumulation businesses in the US, Latin America, and Asia, and our global asset management business.

On execution, our ongoing progress implementing our strategy to grow our asset accumulation businesses in the US, Latin America and Asia and our global asset management business. As I mentioned, operating earnings improved substantially from a year ago. Our growth engines, the US accumulation businesses, Principal International and Principle Global Investors contributed $90 million of our $92 million improvement, more than doubling from a year ago on a combined basis.

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