Principal Financial Group's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Principal Financial Group (PFG)

Q4 2011 Earnings Call

February 03, 2012 10:00 am ET


John Egan - Vice President of Investor Relations

Larry Donald Zimpleman - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, Chairman of Principal Life, Chief Executive Officer of the Principal Life and President of Principal Life

Terrance J. Lillis - Chief Financial Officer, Chief Accounting Officer and Senior Vice President

Daniel J. Houston - President of Retirement, Insurance & Financial Services

Norman R. Sorensen - Chairman of Principal International Inc


Randy Binner - FBR Capital Markets & Co., Research Division

Edward A. Spehar - BofA Merrill Lynch, Research Division

A. Mark Finkelstein - Evercore Partners Inc., Research Division

Suneet Kamath - Sanford C. Bernstein & Co., LLC., Research Division

Steven D. Schwartz - Raymond James & Associates, Inc., Research Division

Christopher Giovanni - Goldman Sachs Group Inc., Research Division



Good morning, and welcome to the Principal Financial Group Fourth Quarter 2011 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to John Egan, Vice President of Investor Relations.

John Egan

Thank you and good morning. Welcome to the Principal Financial Group's Fourth Quarter and Full Year Earnings Conference Call. As always, our earnings release, financial supplement and additional investment portfolio detail are available on our website at Slides related to today's call are also on the website.

Following a reading of the Safe Harbor provision, CEO Larry Zimpleman; and CFO Terry Lillis will deliver some prepared remarks. Then we will open up the call for questions. Others available for the Q&A are Dan Houston, Retirement and Investor Services and U.S. Insurance Solutions; Jim McCaughan, Principal Global Investors; Norman Sorensen and Luis Valdez, Principal International; 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 change 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.

Now I'd like to turn the call over to Larry.

Larry Donald Zimpleman

Thanks, John, and welcome to everyone on the call. As usual, I'll comment on 3 areas: First, I'll discuss fourth quarter and full year 2011 results. Second, I'll provide an update on the continued successful implementation and execution of our strategy. And I'll close with some comments on the financial strength of the company and our capital management plans.

The fourth quarter saw a continuation of a challenging external environment that had a negative impact on quarterly operating earnings. This includes continued volatility of credit spreads, especially on financials, low interest rates and the strengthening of the U.S. dollar against the emerging market currencies. Terry will discuss all of these in more detail.

Despite these external challenges in the fourth quarter, the diversified nature of our business model allows us to weather these difficult periods without any significant degradation of the strength of our financial position caused by having significant long-term equity or interest rate guarantees. This is a significant differentiator for many of our insurance competitors. Despite these external challenges, good momentum continued to build across our businesses in the fourth quarter, demonstrating our competitive advantage and the strength of our distribution relationships and product leadership. Some of the growth metrics from the quarter include strong quarterly sales of $3.3 billion for Full Service Accumulation, the third highest on record, contributing to strong net cash flows of $1.6 billion in the quarter; record quarterly sales of $3.1 billion in Principal Funds, contributing to record net cash flows of $900 million in the quarter; strong net cash flows for Principal International of $1.7 billion; and strong sales in U.S. Insurance Solutions, including $55 million in Individual Life sales in the quarter. These strong results will lead to improved earnings and continued growth in 2012 and beyond.

Turning now to the full year, as outlined on Slide 4, overall results were solid despite the external challenges. Total company assets under management were $335 billion at the end of the year, up 5% over year end 2010. Total company earnings for 2011 improved 4% over 2010 to $878 million, the second highest operating earnings on record, driven by strong sales and enhanced efforts around client retention.

Let me highlight some of the outstanding growth metrics from 2011. Full Service Accumulation full year sales of $8.4 billion were the second highest ever and were 27% higher than 2010 sales. We saw sales growth across all distribution channels and across all plan sizes. Full year net cash flows in Full Service accumulation were $3.8 billion compared to $600 million for full year 2010. This means net cash flow was 3.5%, a beginning of year account value which is close to flows prior to the financial crisis. Additionally, the pipeline has returned to precrisis levels and is up 25% compared to the same period in 2010.

Principal Funds once again had record sales of $11.2 billion for the year, up 20%, resulting in record net cash flows of $2.2 billion for the year against industry flows which were neutral.

Principal Global Investors had $11 billion in mandates awarded in 2011. As of year end, $3 billion had yet to fund, giving us the opportunity for strong net flows in 2012.

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