Principal Financial Unveils Guidance for 2015, Shares Gain
Principal Financial Group Inc. (PFG) announced its projections for 2015 and divulged its capital deployment plans. Shares gained about 0.4% in the last trading session to finally close at $53.68 given its strong expectations.
Principal Financial estimates net revenue to grow in the range of 4–6% at Retirement and Investor Services – Accumulation and in the range of negative 2–2% at Retirement and Investor Services – Guaranteed.
Net revenue is estimated to increase in the range of 7–10% at Principal Global Investors. The pre–tax margin estimate is in the range of 26–28%. Management expects to surpass the 30% pre-tax margin mark in the upcoming years as it expands its global distributions. It believes that the CMBS agreement with Macquarie coupled with an increased stake in Columbus Circle will drive earnings higher.
Principal International is expected to deliver net revenue growth between 8% and 10% in 2015. Management expects the acquisition of AXA’s pension business in Hong Kong (expected to close in the second quarter of 2015) to be slightly accretive to the full year’s bottom line.
At the US Insurance Solution segment, premium and fee in 2015 for Individual Life and Specialty Benefits is projected to increase in the range of 3–5% and 6–8%, respectively. Pre-tax operating margin at Life is estimated between 13% and 16% (low interest rate environment weighing on margin expansion) while at Specialty Benefits the same is estimated at 10–12% for 2015
Operating losses at Corporate and Other in 2015 are expected in the band of $130–$150 million.
Principal Financial estimates the tax rate to be approximately 21–23%.
The company over the past few years has set aside capital for deployment in either strategic acquisitions or for enhancing shareholders’ value. In 2015, the company intends to utilize $0.8–$1 billion for quarterly dividends, strategic acquisitions and share buybacks as well as deleverage its balance sheet.
For 2014, management had initially set aside $500–$700 million for capital deployment. However, given its operational strength, Principal Financial raised its capital deployment expectation to $855 million.
Principal Financial expects shares outstanding at 2015-end to be 297–300 million.
Principal Financial is aligning itself to focus more on the strategic opportunities in the growing asset accumulation and asset management businesses. Also, it is well positioned on the back of its extensive distribution footprint, best-in-class solutions and operational discipline. Deeper focus on fee-based revenue sources has been helping the company earn steadily and limit exposure to the interest rate environment. We believe that these attributes will help it to achieve its expectations going forward.
Principal Financial presently carries a Zacks Rank #3 (Buy). Better-ranked investment managers include Kohlberg Kravis Roberts & Co. L.P. (KKR), Monroe Capital Corp. (MRCC) and Man Group plc (MNGPY). While Kohlberg Kravis Roberts and Monroe Capital sport a Zacks Rank #1 (Strong Buy), Man Group carries a Zacks Rank #2 (Buy).
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