PRINCIPAL FINANCIAL GROUP INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Current Environment: Operating in a dynamic market with policy shifts and uncertainty, volatility in April impacted fee revenue, and focus on resilience and diversified business model.
• Financial Results: First quarter adjusted non-GAAP earnings were $439 million ($1.92 per diluted share), a 10% increase in EPS. $370 million returned to shareholders; total company managed AUM was $718 billion; net cash flow was negative $4 billion due to institutional fixed income withdrawals.
• Segment Highlights: RIS had strong top-line growth and margin; Principal Asset Management saw investment management revenue growth; International Pension had net revenue growth on constant currency; Specialty Benefits had premium growth despite challenges; SBD and SPD had positive earnings and loss ratio improvements; Life had sales growth but lower pretax earnings due to mortality.
• Recognition: Principal named one of the world's most ethical companies for 14th time; Paige AI assistant honored with CIO 100 award.

Segment Performance

• RIS (Retirement, Income, and Savings): First quarter top-line growth was 5%, margin was 41% (a 120 basis point improvement). Recurring deposit growth was 9%, with 12% growth in the small and mid-sized business market. Deferrals and matches were up 4% and 54% respectively.
• Principal Asset Management: Investment management revenue increased 4%, with management fees up 5% due to higher AUM. Seasonal expenses in deferred compensation and payroll taxes were noted.
• International Pension: Net revenue was down slightly due to foreign currency, but up 4% on constant currency. Pretax operating earnings increased 5%, with margin expansion nearly 400 basis points.
• Specialty Benefits: Premium and fees growth was 4%, impacted by lower dental sales and absence of new PFML markets. Employment and wage growth were healthy, and persistency was stable.
• SBD (Small Business Division): Pretax operating earnings grew 5%, with margin within the targeted range. Loss ratio improved 40 basis points to 60.7%.
• SPD (Group Disability): Loss ratio was 60.7%, with dental pricing changes moving through, and expected loss ratio improvement in full year 2025.
• Life: Sales were up 6% driven by bundled business and non-qualified sales. Pretax operating earnings were $14 million down due to higher mortality, but one-year and longer-term mortality were at expected levels.

Guidance

• EPS: First quarter 10% EPS growth, full year 9% to 12% EPS growth target, dependent on market disruption duration and severity.
• Capital Deployment: $200 million share repurchases in Q1, $0.76 common stock dividend declared for Q2, aligned with 40% dividend payout ratio; $1.8 billion excess and available capital; $700-1 billion share buyback guidance for 2025.

Risks

• Market Volatility: Impact on fee revenue in retirement and asset management, difficult to predict upcoming quarters.
• Dental Sales: Lower dental sales due to disciplined pricing actions.
• Mortality Impact: Single large claim in individual life impacted pretax earnings, may affect industry.
• Tariff Impact: Minimal exposure to industries directly affected by tariffs, but monitoring evolving trade policy landscape.

Question and Answer

• Q: How do you feel about the EPS growth outlook given current macro backdrop? **A: Deanna Strable mentioned diversified business portfolio and Joel Pitz discussed 9-12% EPS range dependent on market disruption duration.
• Q: Can you provide more color on management actions and expense side? **A: Deanna Strable and Joel Pitz talked about aligning expenses with revenue, margin expansion, and expense management activities like travel, hiring, consulting spend.
• Q: Talk about client behavior in asset management amidst elevated market volatility. **A: Kamal Bhatia mentioned improved pipeline, higher quality mandates, and increased activity in business now versus later.
• Q: Comments on mortality in life business? **A: Amy Friedrich discussed volatility in individual life due to large claim, but group life performed well, and the large claim is a long-standing one impacting industry.
• Q: Approach to new business in specialty benefits and dental pricing? **A: Amy Friedrich talked about disciplined pricing in dental, impact on new sales, and loss ratio improvement expected in full year 2025.