Business Context and Reporting Period
Company: Principal Financial Group, Inc. (NYSE: PFG)
Filing Type: Form 8-K (Current Report)
Date of Report: December 1, 2010
Business Overview: A Fortune 500 financial services leader offering retirement, investment, life/health insurance, and banking services. As of September 30, 2010, the company reported $305.7 billion in assets under management and served approximately 18.9 million customers globally.
Key Financial Metrics and Guidance
This filing primarily contains forward-looking guidance for the 2011 fiscal year rather than historical financial results for the period ended December 1, 2010.
- 2011 Operating Earnings Per Share (EPS): Expected to range from $2.80 to $3.00 (diluted).
- Corporate Segment Operating Loss: Projected between $100 million and $120 million for 2011.
- Assets Under Management (AUM): Anticipated to increase by 9% to 10% in 2011 compared to 2010.
- Share Count Assumption: Diluted weighted average common shares outstanding expected to range from 315 million to 319 million.
- Market Assumption: Guidance assumes an average S&P 500 Index of 1,250 for 2011.
Note: The filing does not provide specific historical revenue, net income, cash flow, or debt figures for the current reporting period. EPS is a non-GAAP measure adjusted for net realized capital gains/losses and other after-tax items.
Material Changes and Outlook
The primary material update is the issuance of 2011 operating earnings guidance. Management expects a significant increase in assets under management driven by market recovery assumptions (S&P 500 average of 1,250). The guidance explicitly incorporates an expected operating loss in the Corporate segment, indicating ongoing structural or strategic costs at the holding company level.
Risks, Contingencies, and Management Commentary
Management highlighted several risks that could cause actual results to differ materially from the guidance:
- Market and Economic Conditions: Adverse capital and credit market conditions, global economic difficulties, and financial market volatility.
- Liquidity and Capital: Risks related to the ability to meet liquidity needs, access capital, and the cost of capital. The holding company relies on dividends from subsidiaries to meet debt obligations.
- Investment Risks: Potential diminution of invested asset values and investment returns credited to customers.
- Regulatory and Legal: Changes in laws, regulations, or accounting standards; actions by the U.S. government or Federal Reserve; and requirements to post collateral due to asset value declines.
- Operational Risks: Risks associated with acquiring new businesses (goodwill impairment), counterparty credit risk, foreign currency fluctuations, and the inability to attract/retain sales representatives.
- Catastrophic Events: Pandemics, terrorist attacks, or defaults by re-insurers.
Conference Call: Senior leaders were scheduled to discuss performance and guidance on December 2, 2010.
Investor Verification Checklist
- Verify the definition and reconciliation of "Operating Earnings" to GAAP Net Income in subsequent filings.
- Monitor the actual S&P 500 performance in 2011 against the 1,250 average assumption used for guidance.
- Track the Corporate segment's actual operating loss to ensure it remains within the $100M-$120M projected range.
- Review the company's liquidity position and ability to access capital markets given the cited risks regarding credit conditions.
- Confirm the weighted average shares outstanding remains within the 315-319 million range to validate EPS calculations.