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Principal Financial(PFG) - 2024 Q4 - Earnings Call Transcript
PFGPrincipal Financial(PFG)2025-02-07 16:59
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Financial Data and Key Metrics Changes - The company achieved an adjusted non-GAAP earnings per share (EPS) growth of 11% for 2024, with a strong 16% increase in the fourth quarter, driven by top-line growth and equity market tailwinds [10][34] - The free capital flow conversion ratio ended the year at the midpoint of the targeted range of 75% to 85%, and return on equity (ROE) improved by 90 basis points year-over-year, on track to achieve the 14% to 16% target in 2025 [11][35] - Total capital returned to shareholders was 1.7billionin2024,includingsharebuybacksanda101.7 billion in 2024, including share buybacks and a 10% increase in the annual common stock dividend [12][51] Business Line Data and Key Metrics Changes - In the Retirement segment, recurring deposits increased by 7% in 2024, with pension risk transfer (PRT) sales reaching nearly 900 million in the fourth quarter, totaling over 3billionfortheyear[20][24]−AssetManagementendedtheyearwith3 billion for the year [20][24] - Asset Management ended the year with 683 billion of assets under management (AUM), with net flows improving compared to 2023, despite a 28billionnegativeimpactfromforeignexchange[25][26]−SpecialtyBenefitsexperienceda728 billion negative impact from foreign exchange [25][26] - Specialty Benefits experienced a 7% growth in premiums and fees, with a favorable loss ratio of 60.4% for the year [28][44] Market Data and Key Metrics Changes - The S&P 500 gained 25% in 2024, contributing to favorable market conditions for the company's performance [36] - The company managed to offset foreign exchange impacts on AUM through strong equity market performance, resulting in a 3% year-over-year increase in total company-managed AUM [18][37] - The company reported positive institutional and retail flows in the fourth quarter, despite typical seasonal weaknesses in U.S. retirement sales [19] Company Strategy and Development Direction - The company focuses on three strategic areas for sustained growth: the broad retirement ecosystem, small and midsized businesses (SMB), and global asset management [13] - Recent expansions in the retirement ecosystem include new personalized and passive target date offerings, addressing evolving needs [14] - The company aims to maintain a disciplined approach to growth in the SMB segment, leveraging strong customer relationships and a track record of above-market growth [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate changes in the Chilean pension reform, viewing it as an opportunity for long-term growth [68][70] - The outlook for 2025 includes reaffirmed targets of 9% to 12% EPS growth, 75% to 85% free capital flow conversion, and 14% to 16% ROE [54][56] - Management highlighted the importance of maintaining financial flexibility while returning excess capital to shareholders, targeting 1.4 billion to 1.7billionincapitaldeploymentsfor2025[55][126]OtherImportantInformation−ThecompanyreceivedrecognitionasoneofAmerica′sMostJustCompaniesandasaBestPlacetoWorkinMoneyManagementforthe13thconsecutiveyear[30][31]−Thecompanymaintainsastrongcapitalpositionwith1.7 billion in capital deployments for 2025 [55][126] Other Important Information - The company received recognition as one of America's Most Just Companies and as a Best Place to Work in Money Management for the 13th consecutive year [30][31] - The company maintains a strong capital position with 1.6 billion of excess and available capital, supporting its growth initiatives [50][51] Q&A Session Summary Question: Initial thoughts on the pension reform in Chile - Management is optimistic about the reform providing clarity for future operations and believes it will improve system efficiency [68][70] Question: Thoughts on increasing private assets in 401(k) plans - Management sees significant opportunities for increased use of private assets in retirement plans but acknowledges regulatory hurdles that need to be addressed [72][75] Question: Stabilization of participant withdrawals in RIS - Management noted improved retention rates and lower withdrawal rates, contributing to a positive outlook for 2025 [80][84] Question: Expectations for real estate transactional activity and variable investment income - Management anticipates a gradual recovery in the commercial real estate market and expects improved returns in 2025 for the variable investment income portfolio [92][98] Question: Impact of litigation in the PRT market - Management has not seen litigation migrate to the smaller end of the market and remains confident in their PRT business [102][106] Question: Underwriting discipline in Specialty Benefits - Management is exercising underwriting discipline due to competitive pressures, particularly in the dental market, while maintaining a focus on profitable growth [108][115]