Principal Financial Group, Inc. (PFG) Earnings Call Transcript & Summary

Thanks, and good morning, everyone. It's a pleasure to have you join us for Principal Financial Group's conference call covering results from the second quarter of 2026. Our usual practice holds: everything connected to today's discussion can be found on our website, investors.principal.com. Once the safe harbor statement has been read, Deanna Strable, our CEO, together with Joel Pitz, our CFO, will share their prepared comments. After that, we'll take your questions. Senior management team members are likewise on hand for the Q&A portion. Certain remarks we make on this call could include forward-looking statements as defined under the Private Securities Litigation Reform Act. No revision or update of those statements is undertaken by the company to account for fresh information, later occurrences, or shifts in strategy. You can read about the risks and uncertainties that might lead actual results to diverge materially from what was expressed or implied in the company's latest annual report on Form 10-K, which was filed with the U.S. Securities and Exchange Commission. In addition, a few of the remarks on this call could reference non-GAAP financial measures. You'll find reconciliations between those non-GAAP financial measures and the most directly comparable U.S. GAAP financial measures in our earnings release, financial supplement, and slide presentation. Deanna?

Appreciate that, Humphrey, and good morning, everybody joining us. Today I'll walk through how we performed in the second quarter, where we stand on our strategic priorities, and what's new with our business portfolio. After that, Joel will give you more detail on our financial results and capital position. Let's go to Slide 2. We posted another solid quarter, which shows the earnings power of our diversified business model and the continued execution we're seeing across the enterprise. Adjusted non-GAAP earnings per share came in 17% higher than a year earlier and up 15% on a year-to-date basis, with both figures landing above the top end of our target range. The main driver here was a 13% increase in enterprise earnings, which came together with 6% growth in net revenue and a 200 basis point improvement in margins. Most of that earnings gain was due to favorable underwriting results, improved mortality within our Benefits and Protection business, solid fundamentals at RIS, and supportive market conditions for the fee-based side of our operations. Those positives were enough to overcome the revenue hit from investment management net cash flow. On the capital deployment front, we're continuing to execute our plans; in the second quarter we returned approximately $430 million of capital to shareholders, consisting of $250 million through share repurchases and just under $180 million in common stock dividends. Through the first six months of the year, that brought the cumulative amount of capital we've returned to shareholders to $800 million — $450 million from buying back shares and $350 million paid out as common stock dividends. Beyond that, we raised our common stock dividend for a 13th consecutive quarter, marking an 8% bump measured both quarterly and over the trailing 12-month period. Turning now to Slide 3. Sustained growth throughout the enterprise continues to be driven by our strategic priorities; we strengthened our leadership position in retirement, advanced our standing in the small and midsized business segment, and continue leveraging the scale of our global asset management platform to meet clients' changing needs. Within the retirement space — record keeping, asset management, income solutions and advice — the platform is carrying solid momentum. Transfers coming in grew 30% compared with a year earlier, recurring deposits were up 6%, and participants remain engaged, with both planned participation and average contributions increasing. Clients continue to bring their retirement savings together on our platform, generating $1.7 billion in roll-ins for the quarter and over $7 billion across the trailing 12 months, each figure up almost 20%; we're also adding more capabilities throughout the retirement ecosystem. This quarter we broadened our retirement income lineup with new lifetime income builder CITs, which let participants transition smoothly from saving for retirement to producing reliable income once retired. This shows how we're centered on providing options that help people in retirement plans at each important point in their financial journey. More and more third-party platforms are recognizing our know-how in retirement investing, which you can see in the $2 billion in DCIO sales for the quarter and close to $8 billion across the last 12 months. Finally, following a sluggish beginning to the year for the sector, we recorded $500 million in PRT sales during the quarter. Within the small and midsized business area, our unique strengths and extensive knowledge continue to produce strong outcomes in both retirement and benefits. As far as retirement goes, the SMB market remains a significant source of our expansion. Looking at the past twelve months, transfer deposits climbed 16%, a figure that reflects both the durability of client engagement and momentum building over the long term. Recurring deposits gained 6% compared with a year earlier, and the trailing 12-month measure also came in at 6%, demonstrating expansion along with steady input from employers as well as employees. In our Benefits and Protection business, growth continues within the SMB segment, where customer ties keep getting stronger. Sales for Specialty Benefits increased 11% versus the prior year, a sign that demand for what we offer remains solid and that new business is carrying real momentum. To extend that momentum, we are deepening relationships with clients we already serve; products per customer have been climbing consistently across recent years, moving from 2.9 three years back to just under 3.2 at present. Let's now shift to Global Asset Management. Prior to discussing the main points, I want to spend a moment on net cash flow. Our company-wide net outflows reached approximately $11 billion during the quarter, with those losses concentrated among a handful of U.S. active equity strategies. Those strategies are confronting severe headwinds in a market environment that is unusual, even though they have produced exceptional results over many years. Notwithstanding the recent net cash flow, our investment teams have remained disciplined and have demonstrated an ability to successfully steer through earlier stretches of market dislocation, supported by stable leadership and consistent investment processes. I take encouragement from the underlying momentum throughout the wider asset management platform, especially in areas built to serve long-term client needs, such as private markets, international and institutional solutions. Now to the key highlights. On the investment management side, gross sales were up 2% compared with the same period last year, and 13% measured over the trailing 12 months. That growth came from clients wanting our investment capabilities and from the strength of our distribution relationships. Assets under management in Private Markets increased 10% year-over-year, and International Pension assets under management were 18% higher. Our active ETF business keeps growing at a healthy pace, bringing in $500 million of net inflows during the quarter and $2 billion across the trailing 12 months. In the quarter, we also broadened our ETF lineup by launching a new fixed income ETF suite, which opens wider access to our investment expertise and offers clients more flexible solutions that fit their changing portfolio needs. When I consider those three areas fueling our expansion, the progress we've made so far this year and how well we've delivered make me proud. Before Joel takes over, I want to share a few portfolio-related updates. At the start of this month, we revealed a deal to purchase Beam Benefits, an employee benefits firm that operates digitally first and targets the SMB space. More than 25,000 employers are customers of this business, and it produced $175 million in premium during 2025. Through this purchase, we bolster our standing in the SMB arena, widen the customers we can reach, and bring in digital-first distribution strengths — a strong addition alongside the benefits platform we already have. Just as important, this deal still fits within our broader capital framework—our 2026 capital deployment plan and EPS growth targets are unchanged. Last, I'm happy to report that the move of our Hong Kong pension business over to BCT is now finished. That sharpens our focus as a top provider of retirement investment products in the region. To close, momentum is building across the whole company, supported by disciplined execution and the dedication of our 19,000 employees worldwide, and we're positioned well to continue hitting our financial targets. Joel?

Appreciate it, Deanna. Good morning, everybody joining us. Today I'll walk through the main highlights from our second quarter financial results, plus give you some color on where we stand with capital. If you turn to Slide 4, non-GAAP operating earnings came in at $547 million, which is up 12% compared to a year ago, and earnings per share reached $2.50, a rise of 16%. The significant variances you can see laid out on Slide 12 contributed a positive after-tax effect of $18 million, equal to $0.08 per share, during the second quarter. Once you strip those out, non-GAAP operating earnings totaled $529 million, climbing 13% versus the prior year period, and earnings per share of $2.42 was up 17%, landing above the top end of the range we target. Our total company margin reached 32%, widening 200 basis points, on net revenue that grew 6%. That really shows how solid our underlying businesses are, even as we keep putting money into strategic priorities. Non-GAAP operating ROE, when you exclude significant variances, came to 16.4%, a 120 basis point improvement from a year ago, which sits above the midpoint of the 15% to 17% range we target. Net income, leaving out exit business, was $535 million, up 24% from the prior year, with credit losses that were minimal. Now shifting to capital and liquidity. We closed out the quarter in a robust spot, holding more than $1.6 billion in excess and available capital. That figure breaks down as $950 million sitting at the holding company, $300 million within our subsidiaries, and $350 million above our targeted 375% risk-based capital ratio, which came in around 400% when the quarter ended; during the second quarter, we gave back $427 million to shareholders, which was made up of $250 million in share repurchases plus $177 million in dividends. That takes our year-to-date deployments up to $800 million, and we're still on pace to hit our full year capital deployment goal of $1.5 billion to $1.8 billion. Yesterday evening, we declared an $0.84 per share dividend that will be paid out in the third quarter. That's $0.02 more than the previous quarter and 8% above where it was a year ago, which reflects our continued dedication to a 40% dividend payout ratio. Total company managed AUM finished the quarter at $808 billion, which is 5% higher than first quarter 2026 and 7% above the same quarter last year. Now on to the businesses. What follows excludes significant variances. Switching to RIS. On Slide 5, you'll see pretax operating earnings rose 8% from a year ago, helped by 5% net revenue growth and our ongoing expense discipline. Operating margin came in at 41%, expanding 120 basis points versus the year ago quarter, just a bit above the top end of our target range. That speaks to our emphasis on profitable revenue growth, managing expenses, and strong business fundamentals. As Deanna noted, fundamentals throughout the business are still healthy, with robust transfer deposits and consistent recurring deposit growth standing out. These patterns reflect lasting demand for our solutions and the strength of our customer relationships. Now to Slide 6. Principal Asset Management posted earnings growth of 6%, driven by AUM growth and margin expansion. Inside Investment Management, pretax operating earnings were up 4% from the prior year quarter. Modestly higher revenue, together with expense discipline, was more than enough to offset elevated severance during the quarter. The effect of this was a 110 basis point gain in operating margin. Timing meant performance fees came in fairly quiet for the quarter, though our expectation for the full year 2026 remains that they will match 2025. Now on to International Pension. Pretax operating earnings rose 11% versus a year ago, helped by beneficial foreign currency effects and expansion in the business. Operating margin came in 50 basis points higher at more than 47%, comfortably inside our target range. AUM rose 6% compared with the previous quarter and 18% versus a year ago, reaching a record $169 billion. Let's move to Slide 7. Benefits and Protection produced robust pretax operating earnings of $191 million, which is a 29% increase from a year ago. Favorable Specialty Benefits underwriting results and better Life mortality drove this. Beginning with Specialty Benefits, premium fees grew 4% versus a year ago. Our expectation is still that growth will pick up during the second half of the year, and once the Beam Benefits acquisition closes it will deliver a further uplift. Record pretax operating earnings of $162 million, 29% higher than a year ago, reflect more favorable underwriting experience along with business growth. At 57.4%, the Specialty Benefits loss ratio was 280 basis points better than the same quarter last year, with stronger results across every product. This produced an improved operating margin of 19%, 360 basis points above the prior year and beyond our target range. Within Life Insurance, pretax operating earnings reached $29 million, a 29% year-over-year rise, helped by better mortality experience; that fed into a 13% operating margin, 350 basis points higher than a year ago and inside our target range. Now to the Corporate segment. Continued investment in the business pushed losses higher. For the full year, we anticipate landing at the top end of our targeted range. To sum up, we have posted 15% EPS growth year-to-date, which shows the strength, resilience and advantages of our diversified portfolio. The strategic actions we are taking this year allow us to concentrate on higher growth opportunities, the agreement to acquire Beam Benefits, the transition of our Hong Kong business to asset management and the pending sale of our Chile annuity business further optimize our portfolio. With strong fundamentals, a healthy capital position and ongoing focus on our strategic priorities, we remain well positioned to deliver on our financial targets. That wraps up our prepared remarks. Operator, please open the call for questions.

My first question concerns the Beam Benefits acquisition. I was hoping you might provide a bit more detail regarding the strategic reasoning behind it. You mentioned that you don't anticipate any effect on 2026 capital deployment, but could there be some effect on 2027?

Yes. Wes, thank you for asking. I'll ask Amy to discuss what Beam Benefits brings strategically, and Joel to address how it could affect our plans moving forward.

Sure, Wes — I appreciate that question. So, in terms of Beam Benefits, and I want to say again that this deal has me enthusiastic, we haven't crossed the finish line yet. That means what I can say in detail about certain aspects will be somewhat constrained. Still, on the strategic logic: when I consider broadening our footprint in the small and midsized business space, anything that helps us accomplish that gets me energized. Beam Benefits brings genuinely compelling technology. They've accomplished impressive work on underwriting and quoting; beyond that, they also hold a strong connection with 25,000 small business employers, plus they serve 400,000 members throughout the U.S. So factoring in that customer base alongside $175 million in premium, I'm enthusiastic about how it adds to the overall block. What we understand about our own block is that we conduct quite a lot of business in what I'd describe as the micro or small case area; so considering their capacity to deliver effectiveness and efficiency at that micro end — and potentially carry that over to the entire block — I'm excited about the possibility that gives us in terms of bringing in that complete capability. So the size of the business they've built, the addition of more footprint among small and midsized business owners, and then extending that possible effectiveness across our whole block — those are the strategic rationale elements that have me enthusiastic.

Joel?

And then Wes, regarding funding, here we are in Q2 with $1.6 billion of excess and available capital, but the truth is our cash flow tends to be weighted toward the back end, and we generate more capital flow during the second half of the year, plus the proceeds from the Chile annuity sale are arriving in the second half of the year as anticipated. Our capital position and our capacity to deploy capital toward strategic objectives such as Beam Benefits feel very solid to us. As we said in the release earlier this quarter, we also don't anticipate any changes to our outlook guidance when it comes to earnings, free capital flow or ROE. So everything remains very much intact.

Wes, is there anything else you wanted to ask?

Only my second item, which concerned VII. That was a fairly strong outcome for the quarter. It's more or less consistent with what we expect over the long term. And this is the first quarter in some time that I'd say has moved roughly in line; so is there any detail you can give on what to expect for the third quarter ahead when it comes to VII?

I'll let Joel handle that question.

Yes, Wes, we're quite happy with what we delivered this quarter, which, as you noted, matched what had been expected. And what's key is that this came about even though we completed zero real estate deals during the period. So looking at the first six months of the year, you're aware of how much weight real estate carries inside our alternatives portfolio, which stands out considerably compared with what peers show, given that we closed no real estate transactions at all across that half. Thus, as we laid out in our outlook, we anticipated '26 would show gains over '25, exactly as happened the year before, and we absolutely expect that pattern to hold, not just in second quarter '26 but across the rest of '26 too.

I suppose I'll move over to Investment Management. You went through what caused the outflows during the quarter, but I was hoping for a bit more detail on what you're observing and expecting for the second half of the year? And do you think the high equity outflows are mostly confined to this quarter, or might there be some continuing headwinds in that area?

Yes. Ryan, thanks for asking. I'll let Kamal take that one.

Absolutely. So, regarding what you asked about the outlook, I'll tackle that head-on, since it was a significant figure this quarter. The single most crucial thing to understand is that this effect is concentrated in a small number of U.S. active equity strategies. Those strategies account for a bit over 5% of our firm AUM, so it isn't widespread throughout Global Asset Management. A few more elements to assist you further with what you asked. This group of strategies is heavily impacted by the severe and atypical market that has neither rewarded high-quality companies nor valuation of < > stock picking. I'd point out to you that these strategies possess a quite solid long-term record of robust performance, and they especially outperformed during normal return markets. So drawing on historical cycles, one would expect this kind of environment to normalize eventually, though predicting when market turns will occur is extremely hard. As for your question about this quarter, gross sales in 2Q were likewise affected by conflict in Middle East, as numerous institutional investors postponed mandates and engagements because of headlines and market volatility. So concerning the remainder of the year, we do expect net flows to be somewhat challenged, but I remain cautiously optimistic. And one data point I'd leave you with is that our committed not funded pipeline has now increased to approximately $10 billion this quarter; that's up from 1Q, which stands as a testament to the diversity of our capabilities and our channel reach.

Ryan, is there anything else you'd like to ask?

Yeah. I believe you — only 2 questions that are closely tied together, very quickly. First, in Investment Management, I think the fee rate has slipped somewhat. Should we expect that to stay in that range of lower 28 basis points? And second, could you put a number on how much severance affected this quarter?

Yes. Kamal, I think a few factors contributed to that drop in the fee rate; and once more, you're able to quantify the severance too.

Okay, Ryan. As you're aware, our fee rate has, in general, stayed — the core fee rate has, for the most part, held steady inside a band. Like you said, it came in a bit softer this quarter, though broadly it's still within that range. Volatile public markets do exert some downward pressure, in part because of our business mix, and outflows also affect it somewhat. As we keep pushing growth in private markets, and especially with our international emerging local market clients, I do expect these rates to stabilize more, which should drive more sustained growth and operating leverage. On severance, you're correct — we saw elevated severance across IM and IP of roughly $7 million this quarter. In part, that reflects how we're always working to actively manage our expenses against our revenue so we can keep generating a strong margin and create operating leverage in the business.

Could you break down what's behind the dental ratios coming in below earlier years, and what trajectory we should anticipate going forward?

Sure. I'm going to hand that over to Amy. Specialty Benefits delivered really strong outcomes this quarter, and the loss ratio got better across every product, with that improvement showing up quite broadly. That group, as you're aware, has kept a close eye on dental while we work at staying centered on growth that's profitable. Amy can walk you through the finer points.

Yeah, Wilma, thank you. When I consider dental, Deanna really nailed the key issue right at the start — we've deliberately been putting substantial effort into our dental book. It's a product line, and just to quickly remind everyone, inflation and cost pressures weigh heavily on it. Beyond that, when utilization or severity starts shifting in a different pattern, you have the capability to adjust pricing accordingly. But what truly anchors all of this is whether you can influence parts of that dental network. So let me start with what we've accomplished around optimizing the dental network. We recognize that ownership structures in dental networks — possibly even private equity and other players stepping into those structures — mean that remaining genuinely up to date on how providers are using the network, and where we see more members accessing which services, and being able to align those schedules dynamically, is delivering real returns for our owned dental network. Another thing I'd highlight: regarding dental investment, I'd also include the acquisition we announced during the first quarter — the DentaNet deal — as an investment in this area. Its impact will be somewhat regional, but in Alabama it added 1,500 providers to our network. That's the biggest network in the state. This lets us serve customers in those states even better and influence the claims costs they experience when visiting the dentist. So those dental network investments are also delivering returns regionally. We're additionally ensuring that the pricing changes we implemented previously remain in effect across our block. So all those changes — investments in the dental network, optimizing it, plus doing what's needed on pricing changes — are coming together. As I look at the back half of the year, my expectation is that loss ratio will keep declining, not only because of seasonality but also due to the deliberate actions we've been taking.

Wilma, is there anything else you'd like to ask?

Yes. In what ways should we anticipate that buying Beam will strengthen the business we already have? And which areas are likely to feel that effect most strongly?

Once more, I'll hand that question to Amy.

Right, so I think I have to open with this every time — that acquisition announcement hasn't been finalized yet. Because of that, there's only so much I'm able to say, but here's the way I'm approaching it. I'm looking at Beam Benefits. I walked through the strategic logic, and the question that came up before. When I consider synergies on the revenue side and the expense side, there are opportunities in each; let me give a fast illustration. As it stands, Beam leases its dental network; so on the expense synergy side, and one that should come fairly quickly, we'd anticipate eliminating a portion of those leased network expenses. On top of that, they have a quoting and acquisition front end serving that small micro market which, as I said earlier, I see as truly efficient, and truly effective as well. My expectation is that we can extend those capabilities into our larger small case market block. So once more, extending them into our larger market block delivers 10x the leverage they can currently apply to their own block; moving them into the bigger box would unlock capacity to capture additional business for us, even a bit further up market, since we wouldn't be devoting as much time and attention to handling those things further down market. So I'd anticipate a portion of those results showing up in premium and fee growth; and I'd also anticipate them showing up in some of the efficiency we believe we can generate against our expense ratio.

Absolutely, Wilma. I just want to add a handful of points on that. Like Amy mentioned, this acquisition has us really enthusiastic. On its own merits, it's a highly capable player in the SMB benefits sector, and it's going to pair extremely well with the robust results we've delivered in that area across many decades. As you're probably aware — and we've repeated this often — our standards for M&A are demanding: any candidate must offer a solid strategic fit, add to earnings, and show excellent cultural compatibility. Beam unquestionably satisfies every one of those requirements, and we couldn't be happier to welcome them to Principal.

Amy, I've got one more question for you, staying on the Benefits segment. Could you break down what you're seeing across some of your other group businesses, given that life and disability results keep coming in quite strong?

Sure. I'll let Amy address that, and she can really get into what drove things this quarter, plus how she's viewing the durability of both the loss ratio and earnings going forward.

Yes, Joel, when I look at that, the underwriting results really showed up throughout every line of business. So that better performance — the 57.4% figure — came from all of our product groupings. The ones that stand out most, and that we want to examine a bit more closely, are probably dental, disability and life. You already heard a few remarks about dental, but dental results got better and remained tied to the dental network optimization work and to pricing moves we made previously. I mentioned that dental seasonality is likely somewhat present in the second quarter, and we did observe it rise slightly in the second quarter, which is what we had expected. Once more, it wasn't as pronounced as what we saw in last year's second quarter, but we did see it, and we had anticipated it. Disability was mainly a matter of lower incidences. That holds true across every disability line. I should point out that recoveries for group LTD came in right in line with expectations. So the outperformance came from incidence, not really from recoveries or severity. Group life — and again, we sometimes say less about group life — but group life keeps doing well, and lower frequency drove that too. So the outlook for the full year stays favorable. And I want to note that I now expect loss ratios to come in below the low end of the guidance range for the full year. When I break that down more for the second half, we've discussed how the dental loss ratio keeps trending down, thanks to those past pricing actions, network optimization, and the usual second half seasonality. I don't expect disability loss ratios to get any better than the first half results, and I do believe it's reasonable to anticipate some upward movement in products such as group LTD relative to the first half, though certainly not returning to historical levels. I think it's worth pointing out that wage growth, which matters a great deal for a product like disability, is positive, and it's holding steady in our block, while employment growth is positive too and tracking in line with our expectations. So to sum all of that up, I'm really pleased with how underwriting performed across SBD. The way we run our business, with steady underwriting discipline balanced against a focus on growth, has really been evident in this first half of the year. I'd repeat that I expect full year underwriting results for SBD overall to come in below the end of that 60% to 64% range that was communicated in outlook, and we do expect dental underwriting results to get better in the second half, driven by both seasonality and network optimization.

Joel, do we have another question, or is this a follow-up?

Sounds good. That was quite useful. And Deanna, perhaps returning to M&A for a moment. I was hoping to hear your perspective on whether Principal might pursue additional M&A, correct? Earlier this month, a few media reports came out hinting at interest in bigger-scale deals. I'd just like your view on whether more M&A lies ahead in retirement, in Asset Management, or in Benefits?

Sure, let me begin with the standard response, which is that we never discuss market rumors. What I can tell you is that, as a lot of you have heard from me previously, our approach to M&A hasn't shifted, and the bar we set for any transaction is extremely high. We won't hesitate to go after M&A. You witnessed that with Beam, yet every transaction must fit financially, strategically, and culturally. In our view, M&A serves more as an opportunistic accelerator rather than something mandatory, since organic growth remains our main route to hitting our objectives. I'd add that we have no interest in deals done purely for scale, particularly one requiring a premium to complete. And in the end, what we're truly seeking are transactions that deliver new strategic capabilities able to be scaled across the entire enterprise. I think I'll point again to Beam Benefits as a strong illustration of that. It brought added capabilities. It made our SMB value proposition stronger. Those are the kinds of things we'll keep our focus on going forward.

When it comes to the retirement segment, structural factors lead me to believe flows will lean negative, correct? So considering cap contributions and sizable balances that can be withdrawn, but if you look at different metrics like plan counts and how many active participants there are, how have those measures been moving at Principal?