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Tuesday, August 4, 2009

PFG 2Q09 Earnings release

Principal Financial Groups (PFG) reported 2Q09 earnings result of $150.3 million net income available to common stockholders or $0.52 per diluted share, compare to 2Q08 number of $168.3 million or $0.64 per share. It missed analysts’ estimate by 20%. Reduced fees earned from asset valuations, a stock offering on May of 2009 that increased number of shares outstanding, and high pension costs due to negative market performance all contributed to the decline in the per share result.
Generally, their numbers were all lower compared to 2Q08 when the S&P 500 still was trading at upper 1200 level. However, over the three consecutive quarters, PFG has shown some improvements and their business has returned to more normal state. Total assets under management decreased to $257.7 billion from $308.0 billion year ago period, but increased 9% since the last quarter.

Net income available to common stockholders includes some realization of capital losses on their other than temporary impairment of fixed maturity securities, losses related to hedging activities, commercial mortgage loan losses, and etc.

Significant market losses coupled with rising unemployment level and reduced investment income is negatively affecting company’s earnings result for the quarter, but the company is also likely to benefit more upon improvement in unemployment level and interest rate increase. The market is already recovering, up 48% from the March low, which will make PFG’s comparable earnings look fabulous in the near future.

Patience has been proven to be a virtue with this company, marking remarkable 289% come back from March low. However, the stock is still 65% below its end-of-2007 price level and it will only be taking longer from here to recover, since the job market will not be able to turn around as quickly as the market did.

PFG is trading at 8.5 P/E, near half of their historical 14 average P/E level.

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