Principal Tops Estimates on Net-Income Decline

To exit the health-care field, the financial-services firm had a one-time loss of $48.5 million

Des Moines, Iowa-based Principal Financial Group (PFG) said Monday that it had operating earnings of $218.9 million for third quarter 2010, or 68 cents a share, vs. $219.1 million, or 68 cents a share, a year ago – a jump of 19%. This topped earnings estimates of 63 cents.

Net income was $142.2 million, or 44 cents a share, however, down from $184.7 million, or 57 cents a share, for the three months ended Sept. 30, 2009. Operating revenues for third quarter 2010 were $1,986.7 million compared to $1,961.0 million for the same period last year.

Average assets under management rose 12%, the company says, to $42.3 billion.

"Highlights for the quarter include strong net cash flow in Principal Funds, Principal Global Investors and Principal International," said Chairman, CEO and President Larry D. Zimpleman, in a press release.

The net cash flow in the third quarter was $1 billion, and “solid sales” of three key U.S. retirement and investment products: $864 million for full-service accumulation, $2.5 billion for Principal funds, and $364 million for individual annuities, the company stated in a press release.

The Principal funds had net cash flows of $790 million in the third quarter, while Principal Global Investors had unaffiliated net cash flow of $800 million.

Net Income

Net income of $142.2 million in the third quarter included the impact of capital losses of $30.9 million, which were related to:

  • $29.1 million of losses related to credit gains and losses on sales and permanent impairments of fixed maturity securities, including $19.9 million of losses on commercial mortgage backed securities;
  • $7.2 million of losses on commercial mortgage whole loans;
  • $5.6 million of losses on residential mortgage loans; and
  • $7.7 million of gains from the appreciation of fixed maturities designated as trading.

Net income also reflected a $48.5 million of one-time after-tax losses from planned severance and goodwill write-off as a result of our exit from the medical insurance business. 

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