Principal Financial Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Principal Financial Group (PFG)

Q1 2012 Earnings Call

April 27, 2012 10:00 am ET

Executives

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

Luis Valdez - Chairman of Principal International Inc., Chief Executive Officer of Principal International Inc. and President of Principal International Inc.

James Patrick McCaughan - President of Principal Global Investor

Analysts

Joanne A. Smith - Scotiabank Global Banking and Market, Research Division

John M. Nadel - Sterne Agee & Leach Inc., Research Division

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

Christopher Giovanni - Goldman Sachs Group Inc., Research Division

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

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

Eric N. Berg - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Good morning, and welcome to the Principal Financial Group's First Quarter 2012 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to John Egan, Vice President of Investor Relations.

John Egan

Thank you and good morning. Welcome to the Principal Financial Group's first quarter earnings conference call. As always, our earnings release, financial supplement and additional investment portfolio detail are available on our website at www.principal.com/investor. Slides related to today's call are also available on our website.

Following the 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 your questions. Others available for the Q&A are Dan Houston, Retirement and Investor Services and U.S. Insurance Solutions; Jim McCaughan, Principal Global investor; Luis Valdez, Principal International; and Julia Lawler, our 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.

I'd also like to remind everyone that our 2012 Investor Day will be held Friday morning, September 21, in New York. Details to follow closer to the event.

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 briefly discuss first quarter 2012 results. Second, I'll provide an update on the continued successful execution of our strategy, and I'll close with some comments about our capital deployment strategy. Then Terry will cover the financial results in more detail.

As John mentioned, we provided slides related to today's call. Slide 4 outlines the key themes for the quarter.

First quarter with was a solid start to the year as we saw a strong growth across all businesses, along with a strategic acquisition in Claritas and effective capital deployment. Total company operating earnings were $213 million, and we ended the quarter with record assets under management of $364 billion.

First quarter 2012 total company net cash flows of $8 billion are higher than full year 2011 net cash flows. As we move through 2012, this record level of assets under management and momentum in net cash flows, along with stronger variable investment income, higher performance fees and less seasonality in claims, will combine to give a stronger earnings in the second half of the year.

We delivered strong sales and net cash flows in the first quarter, demonstrating our competitive advantages namely: the strength of our distribution relationships, demand for our products and service and investment expertise.

Key growth metrics from the quarter include: Full Service Accumulation sales were $3.2 billion, up 62% compared to first quarter 2011. Net cash flows of $2 billion are more than double from the year-ago quarter. Principal Funds had record sales of $3.7 billion, and record net cash flows of $1.5 billion. Principal Global Investors had record unaffiliated assets under management of $91 billion, and unaffiliated net cash flows were $3.3 billion, a strong improvement over first quarter 2011.

Reported assets under management for Principal International were $59 billion, up 22% over the year-ago quarter, and record net cash flows of $2.3 billion are up 77% over the same time last year.

In U.S. Insurance Solutions, Individual Life sales of $49 million increased 2% over strong sales in first quarter 2011. Specialty benefits premium and fees grew 5% to $354 million over the year-ago quarter.

Behind our momentum in sales and retention is a renewed excitement across the organization. During the first quarter, I attended sales conferences in the U.S., Asia and Latin America. Enthusiasm among our teams has never been higher and the momentum is the strongest I've seen. We have a well-diversified set of businesses, we are in the right geographic markets and we have exactly the right strategy for future growth.

As we emerge from the economic crisis, we're in the strongest financial position in our history, and we continue to gain market share. We have opportunistically invested in the markets we want to be in, resulting in accelerated growth of our fee-based businesses, which creates increasing amounts of free cash flow and increased financial flexibility. We will continue to strike the right balance between growth and profitability.

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