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PRINCIPAL FINANCIAL GROUP INC (PFG)·Q2 2025 Earnings Summary

Executive Summary

  • PFG delivered a strong quarter: non-GAAP operating EPS of $2.16, up 33% YoY, and $2.07 excluding significant variances, up 18% YoY; non-GAAP operating earnings were $489M (+27% YoY) .
  • EPS beat Wall Street: Actual operating EPS $2.16 vs consensus $1.97; revenue missed: actual $3.67B vs consensus $3.98B; PFG raised the quarterly dividend to $0.78 and returned $320M in capital, a potential stock-supportive catalyst* .
  • Segment execution: RIS margin rose to 40.9% (+270bps YoY), Investment Management margin to 37.5% (+360bps), and Specialty Benefits loss ratio improved 130bps; Life Insurance earnings were pressured by higher claim severity .
  • Capital and outlook: Excess capital of $1.4B; RBC ratio ~400%; management reaffirmed confidence in delivering full-year 2025 targets (EPS growth, ROE 14–16%, pre-capital flow 75–85%) and expects higher share repurchases in 2H25 .

What Went Well and What Went Wrong

What Went Well

  • Strong EPS growth and capital return discipline: “We are well positioned to deliver on our full year enterprise outlook... enter the second half of the year with momentum” — Deanna Strable; $150M buybacks and $170M dividends in Q2 .
  • Margin expansion across core franchises: RIS operating margin 40.9% (+270bps YoY); Investment Management margin 37.5% (+360bps YoY) on higher management/performance fees; Specialty Benefits operating margin 15.2% (+180bps YoY) .
  • Recognition of technology initiatives: PAGE AI recognized by Newsweek; digital ID verification honored with 2025 CSO Award, supporting operational efficiency and customer experience narratives .

What Went Wrong

  • Revenue shortfall vs consensus and continued net outflows: Q2 revenue $3.67B vs $3.98B consensus; AUM net cash flow of -$2.6B (though improved sequentially) as elevated markets pressured fee-based flows* .
  • Life Insurance earnings decline: Pre-tax operating earnings fell to $20M (−15% YoY) due to higher claim severity; operating margin decreased to 8.4% (from 10.4%) .
  • Variable investment income below long-term run rate and real estate transactions muted: VII improved sequentially but remained below run-rate; no Q2 real estate transaction activity, with improvement expected later in 2025 .

Financial Results

EPS and Income (quarterly progression; oldest → newest)

MetricQ4 2024Q1 2025Q2 2025
GAAP Net Income ($MM)$905.4 $48.1 $406.2
Non-GAAP Operating Earnings ($MM)$448.1 $414.5 $489.3
GAAP Diluted EPS ($)$3.92 $0.21 $1.79
Non-GAAP Net Income EPS ($)$1.53 $1.31 $1.91
Non-GAAP Operating EPS ($)$1.94 $1.81 $2.16
Non-GAAP Operating EPS ex SV ($)$2.10 $1.92 $2.07

Year-over-Year Reference (Q2 2024 vs Q2 2025)

MetricQ2 2024Q2 2025
Non-GAAP Operating Earnings ($MM)$386.1 $489.3
Non-GAAP Operating EPS ($)$1.63 $2.16
Non-GAAP Operating EPS ex SV ($)$1.76 $2.07
AUM ($B)$699.2 $752.7
AUA ($T)$1.620 $1.738

Revenue and EPS vs S&P Global Consensus (Q2 2025)

MetricConsensusActualBeat/Miss
Operating EPS ($)1.97*2.16 +$0.19 (beat)*
Revenue ($B)3.98*3.67*−$0.31 (miss)*
# of EPS Estimates12*——
# of Revenue Estimates4*——

*Values retrieved from S&P Global.

Segment Breakdown (Q2 2025 vs Q2 2024)

SegmentMetricQ2 2024Q2 2025
Retirement & Income SolutionsPre-tax Operating Earnings ($MM)$267.8 $292.1
Net Revenue ($MM)$700.9 $713.9
Operating Margin (%)38.2% 40.9%
Investment ManagementPre-tax Operating Earnings ($MM)$133.6 $157.9
Operating Rev. less Pass-through ($MM)$406.5 $429.0
Operating Margin (%)33.9% 37.5%
International PensionPre-tax Operating Earnings ($MM)$55.7 $78.5
Net Revenue ($MM)$141.4 $159.2
Operating Margin (%)39.4% 49.3%
Specialty BenefitsPre-tax Operating Earnings ($MM)$108.7 $127.6
Premium & Fees ($MM)$813.5 $840.2
Operating Margin (%)13.4% 15.2%
Incurred Loss Ratio (%)61.5% 60.2%
Life InsurancePre-tax Operating Earnings ($MM)$23.6 $20.0
Premium & Fees ($MM)$227.0 $238.0
Operating Margin (%)10.4% 8.4%

KPIs and Capital

KPIQ2 2025
AUM ($B)$752.7
AUA ($T)$1.738
AUM Net Cash Flow ($B)−$2.6
Excess & Available Capital ($B)$1.4
RBC Ratio (Principal Life)~400% (est.)
Book Value/Share ($)$51.14; ex FV/AOCI $54.97
Tax Rate (Q2 / FY Guide)18% / 17–20%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend/Share ($)Q3 2025$0.76 (Q2 2025 dividend) $0.78 Raised
Capital Deployment ($B)FY 2025$1.4–$1.7 $1.4–$1.7; repurchases $0.7–$1.0 Maintained
Share Repurchases ($B)FY 2025Not specified priorExpect higher in 2H25 within $0.7–$1.0 Qualitative higher 2H
Non-GAAP ROE (%)FY 202514–16 14–16; Q2 at 14.9% ex AAR Maintained
Pre-capital Flow (%)FY 202575–85 75–85 (slightly above range in Q2) Maintained
Tax Rate (%)FY 202517–20 17–20; Q2 actual 18 Maintained
Investment Mgmt Performance FeesFY 2025In line with 2024 In line with 2024; 2H25 more modest than 1H25 Maintained nuance

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
AI/Technology initiativesNot highlighted in 8-K—PAGE AI recognized; digital ID verification award Increasing visibility
Macro/markets & fee revenueMarket volatility noted; segment margins mixed AUM $718B; net outflows −$4.4B April drawdown hit daily averages; May/June rebound; AUM $753B; NCF −$2.6B Improving sequentially
RIS product/flows & marginsTransfer deposits +57% in 4Q24; margin 38.4% Recurring deposits +9%; margin 39.2% Margin 40.9%; fee-based transfers +24%; AV withdrawals stabilizing Margin rising; flows stabilizing
PRT pipeline/competitiveness4Q24 PRT sales $0.9B PRT $0.8B Q2 PRT ~$0.445B; expect $2.5–$3.0B FY depending on pipeline; disciplined returns Moderate near term; steady FY target
Asset Management flows/performance feesMargin 38.3%; lower perf. fees YoY Operating rev. less pass-through +4%; margin 29.0% Margin 37.5%; perf. fees from alt debt; guidance in line with 2024; 2H more modest Margin up; flows mixed
Variable investment income (VII)Below expectations across segments VII headwinds persist; SV detail provided VII improved vs Q1 but below run-rate; no Q2 real estate transactions; expect 2H pickup Gradual recovery expected
Specialty Benefits pricing & loss ratiosLoss ratio 56.5% in 4Q24; strong underwriting ILR 60.7%; improved 40bps YoY ILR 60.2%; dental improving; margin 15.2% Healthy; dental normalizing
Life Insurance severityGAAP-only closed block adjustment; earnings down Earnings up QoQ; severity pressure Pre-tax earnings $20M; severity elevated; non-qualified sales strong Mixed: sales strong; claims severe
Regulatory/legal & RBCRBC 404% reported —RBC ~400% estimated; strong capital Stable strong capital

Management Commentary

  • “Our continued focus on high-growth markets, competitive advantages, and execution led to strong EPS growth and continued ROE expansion in 2Q25... enter the second half of the year with momentum...” — Deanna Strable .
  • “Reported non-GAAP operating earnings were $489M… EPS was $2.16… excluding significant variances $2.07… ROE ex AAR of 14.9% within our 14–16% targeted range.” — Joel Pitz .
  • “Operating margin of 15% [Specialty Benefits] expanded 100bps… dental results improved relative to the year-ago quarter and were positively impacted by pricing actions.” — Joel Pitz .
  • “We remain committed to delivering on our full-year capital return targets of $1.4–$1.7B, including $700M–$1B of share repurchases… expect a higher level of share repurchases in the latter half of the year.” — Joel Pitz .
  • AI recognition: “PAGE was recognized… for applying AI to solve complex challenges, improve operations, and deliver meaningful outcomes.” — Deanna Strable .

Q&A Highlights

  • Expense discipline and margins: Management emphasized aligning expenses with revenue; enterprise margin improved 140bps YoY; expect continued discipline .
  • RIS flows and spreads: AV net cash flows improved YoY; elevated markets drive withdrawals; PRT sales ~$445M; disciplined returns over volume .
  • Variable investment income: VII improved vs Q1 but below run-rate; real estate transactions expected to pick up in 2H25; alt portfolio ~50% real estate .
  • Investment management performance fees: Q2 fees driven by alt debt; full-year fees in line with 2024; 2H more modest unless real estate equity engine kicks in .
  • Dental market dynamics: Competitive new case pricing; renewal pressure at peers could ease; expect second-half improvement in growth and better loss ratios seasonality .
  • Private investments in DC plans: Opportunity acknowledged; fiduciary/liquidity hurdles mean a gradual build; Principal has relevant partnerships and capabilities .

Estimates Context

  • Q2 2025 EPS beat: $2.16 actual vs $1.97 consensus; stronger margins and a one-time expense accrual release ($0.14/sh) supported the beat* .
  • Revenue miss: $3.67B actual vs $3.98B consensus; daily average AUM in April dampened fee revenue despite end-period market rebound* .
  • Forward EPS setup: Q3 2025 EPS consensus ~2.20 and Q4 2025 ~2.23; management expects higher buybacks in 2H25, specialty benefits growth trending up, and VII improvement later in the year, which may support estimates* .

*Values retrieved from S&P Global.

Key Takeaways for Investors

  • Quality beat on EPS with broad-based margin expansion; watch for continued operating leverage and normalized VII to sustain EPS trajectory .
  • Revenue headwinds tied to April market averages should ease if market strength persists; segment fee engines (Investment Management management fees; RIS net revenue) remain intact .
  • Capital return remains a core pillar: dividend raised to $0.78; management points to higher 2H25 repurchases within the $700M–$1B range .
  • Specialty Benefits underwriting remains strong; dental headwinds are easing with pricing actions and typical second-half seasonality .
  • Life Insurance earnings sensitivity to severity persists; balance this with strong non-qualified sales and distribution breadth .
  • PRT pipeline and discipline suggest FY sales in the $2.5–$3.0B range; returns prioritized over volume, a positive for sustainable margins .
  • Near-term catalysts: buyback acceleration in 2H25, VII improvement with potential real estate transactions, and sustained segment margin strength; monitor market averages’ impact on fee revenue .