01—Abstract
Summary
Summary of the 10-K filed February 9, 2018. Cited figures are marked; the original filing is the authoritative source.
Principal Financial Group, Inc. (PFG) reported $668.6 billiona in assets under management (AUM) and approximately 22.8 million customers worldwide as of December 31, 2017.
The company operates four reportable segments: Retirement and Income Solutions, Principal Global Investors, Principal International and U.S. Insurance Solutions, plus a Corporate segment. Net income attributable to Principal Financial Group, Inc. was $2,310.4 millionb in 2017, up from $1,316.5 million in 2016, and diluted earnings per share were $7.88, compared with $4.50 in 2016. The filing states that net income benefited $568.3 million from U.S. tax reform and $410.8 million after-tax from real estate transactions completed in September 2017.
Total revenues rose to $14,093.2 millionc from $12,394.1 million, with net realized capital gains of $524.2 million, including $690.9 million of pre-tax gains from the real estate transactions. Total stockholders' equity increased to $12,921.9 million from $10,293.8 million. Total assets were $253,941.2 million.
Net cash provided by operating activities was $4,188.0 milliond. Management highlights growth in fee revenues and account values in Retirement and Income Solutions, and AUM growth in Principal Global Investors, which reached $430.9 billion.
The filing also points to pending transactions, including the acquisition of MetLife Afore in Mexico (expected to close in the first half of 2018), the acquisition of INTERNOS, a London-based real estate investment manager, and a realignment of ownership in CPAM and CPIAM in Southeast Asia to 60%. Key risks cited include interest rate sensitivity, a sustained low interest rate environment, dependence on dividends from Principal Life limited by Iowa law, and exposure to commercial mortgage loans concentrated in California.
02—Key points
Key Highlights
- Net income attributable to Principal Financial Group, Inc. rose to $2,310.4 million in 2017 from $1,316.5 million in 2016; diluted EPS was $7.88 versus $4.50.
- U.S. tax reform benefited 2017 net income attributable to PFG by $568.3 million, and after-tax realized gains from 2017 real estate transactions added $410.8 million.
- AUM reached $668.6 billion at December 31, 2017, up from $591.6 billion a year earlier; Principal Global Investors managed $430.9 billion.
- Total revenues increased to $14,093.2 million from $12,394.1 million, with net realized capital gains of $524.2 million versus $171.1 million in 2016.
- Stockholders' equity grew to $12,921.9 million from $10,293.8 million, and total assets were $253,941.2 million.
- Total cash returned to stockholders was $760.4 million in 2017, comprising $540.0 million of dividends and $220.4 million of share repurchases; dividends declared per share were $1.87 versus $1.61.
- Pending acquisitions include MetLife Afore in Mexico and INTERNOS in Europe, both expected to close in the first half of 2018, subject to regulatory approval.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 9, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $14.09B$12.39B | +13.7% |
| Net Income | $2.32B$1.32B | +76.6% |
| EPS (Basic) | $8.00$4.55 | +75.8% |
| EPS (Diluted) | $7.88$4.50 | +75.1% |
| Shares Outstanding (Basic) | 288.90M289.40M | −0.2% |
| Shares Outstanding (Diluted) | 293.10M292.70M | +0.1% |
05—Questions
Frequently Asked Questions
What drove the increase in 2017 net income?
The filing attributes $568.3 million of the increase to the U.S. tax reform's effect on income taxes and $410.8 million to after-tax net realized capital gains from real estate transactions completed in September 2017. Net income attributable to PFG was $2,310.4 million, compared with $1,316.5 million in 2016.
How much capital did Principal return to shareholders in 2017?
Total cash returned to stockholders was $760.4 million, consisting of $540.0 million in common dividends and $220.4 million in share repurchases. Dividends declared per common share were $1.87, up from $1.61 in 2016.
What are the main sources of growth in the business?
The filing cites higher account values and fee revenues in Retirement and Income Solutions from positive market performance and net customer cash flows, growth in Principal Global Investors AUM to $430.9 billion, and continued growth in Principal International and U.S. Insurance Solutions. Principal International AUM rose to $160.7 billion.
What risks does the filing highlight for investors?
Key risks include a sustained low interest rate environment that can compress spreads and increase reserves, exposure to commercial mortgage loans with 18% of the U.S. portfolio concentrated in California, and the ability of PFG to pay dividends, which depends on dividends from Principal Life that are limited by Iowa insurance law. The filing also notes that a ratings downgrade could increase policy surrenders and raise the cost of capital.
What transactions are pending after year-end 2017?
The company announced an agreement to acquire full ownership of MetLife Afore in Mexico, which would add about $3.7 billion in AUM and 0.7 million customers, and the acquisition of INTERNOS, a London-based real estate investment manager with $3.25 billion in AUM. It also agreed to increase its stake in CPAM and CPIAM to 60%. The filing expects the MetLife Afore and INTERNOS deals to close in the first half of 2018 and the CPAM/CPIAM transaction in the second quarter of 2018, subject to regulatory approvals.
06—Continue