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Principal Financial(PFG) - 2023 Q4 - Earnings Call Transcript
PFGPrincipal Financial(PFG)2024-02-13 18:32
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Financial Data and Key Metrics - The company returned 1.3billiontoshareholdersin2023throughsharerepurchasesandcommonstockdividends,representingnearly901.3 billion to shareholders in 2023 through share repurchases and common stock dividends, representing nearly 90% of net income excluding exited businesses [3] - Full-year 2023 non-GAAP operating earnings were 1.6 billion or 6.55perdilutedshare,a66.55 per diluted share, a 6% increase over 2022 [27] - Fourth-quarter non-GAAP operating earnings were 441 million or 1.83perdilutedshare,withtotalcompanymanagedAUMreaching1.83 per diluted share, with total company managed AUM reaching 695 billion, up over 9% from 2022 [91] - The company ended 2023 with 1.7billionofexcessandavailablecapital,including1.7 billion of excess and available capital, including 935 million at the holding company, above the 800milliontargetedlevel[55]BusinessLinePerformance−RetirementandIncomeSolutions(RIS)sawa22800 million targeted level [55] Business Line Performance - Retirement and Income Solutions (RIS) saw a 22% increase in pre-tax operating earnings in Q4 2023 compared to Q4 2022, driven by business growth, higher net investment income, and favorable markets [20] - RIS sales increased 9% in 2023, with fee-based transfer deposits up 17% and 3 billion in pension risk transfer sales [11] - Specialty Benefits achieved a 9% growth in premium and fees in 2023, with strong retention and employment growth contributing to the increase [29] - Principal International reported a 9% revenue growth in 2023, with a 32% margin and an 11% increase in pre-tax operating earnings over 2022 [75] Market Performance - The S&P 500 daily average increased 4% from 2022, with the index up 24% from the end of 2022 [74] - Retail net cash flow remains challenged, with approximately 6trillionofassetsinmoneymarketfundsorcashequivalents[10]−Thecompanybenefitedfromdiversificationacrossinstitutional,retail,retirement,privateassets,andinternationalgeographies[10]StrategicDirectionandIndustryCompetition−Thecompanyisfocusedonmaintainingcapitalandliquiditytargets,withabalancedapproachtocapitaldeployment[22]−PrincipalInternationalexpectslowsingle−digitrevenuegrowthin2024,reflectingforeigncurrencytranslationandmacroheadwindsinAsia[36]−Thecompanyistargeting6 trillion of assets in money market funds or cash equivalents [10] - The company benefited from diversification across institutional, retail, retirement, private assets, and international geographies [10] Strategic Direction and Industry Competition - The company is focused on maintaining capital and liquidity targets, with a balanced approach to capital deployment [22] - Principal International expects low single-digit revenue growth in 2024, reflecting foreign currency translation and macro headwinds in Asia [36] - The company is targeting 1.5 billion to 1.8billionincapitaldeploymentsfor2024,including1.8 billion in capital deployments for 2024, including 800 million to 1.1billioninsharerepurchases[93]ManagementCommentaryonOperatingEnvironmentandFutureOutlook−Thecompanyexpects91.1 billion in share repurchases [93] Management Commentary on Operating Environment and Future Outlook - The company expects 9% to 12% growth in earnings per share and 75% to 85% free capital flow conversion in 2024 [63] - Management anticipates continued pressure on real estate returns and prepayment fees if the current macro environment persists [34] - The company is well-positioned to deliver on long-term financial targets, with a strong capital position and momentum heading into 2024 [37] Other Important Information - The company announced the retirement of Pat Halter, President of Principal Asset Management, after 40 years of service [18] - Principal Asset Management was named a Best Place to Work in Money Management for the 12th consecutive year [51] - The company established a Bermuda reinsurance entity, which freed up 200 million of capital in Q4 2023 [58] Q&A Session Summary Question: Outlook for real estate-related activities in 2024 [39] - The company expects continued pressure on real estate revenue, with variable investment income difficult to predict [34] - The commercial mortgage loan portfolio remains healthy, with an average loan-to-value of 49% and a stable debt service coverage ratio of 2.5x [21] Question: Impact of exiting guaranteed products in Hong Kong [72] - The exit freed up 30millionto30 million to 40 million in capital in Q4 2023, with a similar amount expected in early 2024 [73] - The exit will pressure Hong Kong earnings by approximately $10 million on a pre-tax basis in 2024 [73] Question: Trends in RIS fee flows in the SMB market [83] - SMB transfer deposits increased 12% on a trailing 12-month basis, with recurring deposits up 14% [83] - The company sees healthy fundamentals in the SMB market, driven by participant deferrals and employer matches [83] Question: Competitive environment in RIS [106] - The company remains competitive, with WSRS sales up 14% and fee-based transfer deposits up 17% in 2023 [107] - Strong revenue retention and underlying business fundamentals support the company's ability to compete effectively [107] Question: Commercial mortgage loan portfolio maturities [200] - The company has 11 office loans maturing in 2024, with one already paid off in January [201] - The remaining loans have a 66% loan-to-value and a debt service coverage ratio of 3.8x, with 94% occupancy [208] Question: Outlook for alternative returns [142] - The company expects alternative returns to be in the 8% to 8.5% range, with real estate pre-pays likely running below expectations [143] - Private equity and hedge funds performed better than expected in 2023, offsetting some real estate pressures [149]