tapebrief
PFG · Q3 2025

PFG · Q4 2025 Earnings

Bullish

Principal Financial Group

Reported February 9, 2026

30-second summary

Principal closed FY2025 with $8.55 non-GAAP operating EPS ex-significant variances and used the Q4 FY2025 print to reintroduce the granular forward framework that disappeared in Q3 — initiating FY2026 guidance of 9-12% non-GAAP operating EPS growth ($9.32-$9.58), a raised 15-17% ROE target (up from 14-16%), 75-85% free capital flow conversion, and $1.5-1.8B of capital deployment including $0.8-1.1B of buybacks (vs. FY2025 actual $851M, i.e., roughly flat-to-slightly-up). Q4 FY2025 segment margins held: RIS at 39.7%, IP at 42.7%, Specialty Benefits at 16.8% with the incurred loss ratio at 57.6% (below the 60-64% target range). The dental pricing thesis got a forward anchor in Q&A (loss ratio target moving from low-70s historical to high-60s longer-term, with more improvement in 2026 than 2025), and the small international divestitures (including a Chile annuity book generating $65M revenue / $30M pre-tax) are positioned as EPS- and ROE-accretive.

Headline numbers

EPS

Q4 FY2025

$2.24

Key financials

Q4 FY2025
MetricQ4 FY2025YoYQ3 FY2025QoQ
EPS$2.24—$2.10+6.7%

Guidance

Principal Financial initiates comprehensive FY2026 guidance framework with 9-12% non-GAAP operating EPS growth, new ROE and capital flow conversion metrics, and elevated capital deployment targets.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

New guidance

MetricPeriodGuideYoY
Non-GAAP Operating EPS GrowthFY 20269-12%9-12%
Non-GAAP EPSFY 2026$9.36-$10.32—
Free Capital Flow ConversionFY 202675-85%—
Non-GAAP ROEFY 202615-17%—
Capital DeploymentFY 2026$1.5B-$1.8B—

Segment performance

Q4 FY2025
SegmentQ4 FY2025YoY
Retirement and Income Solutions$0.754B+3.0%
Principal Asset Management (Investment Management)$0.442B+1.0%
International Pension$0.152B+11.0%
Specialty Benefits$0.846B+3.0%
Life Insurance$0.236B+5.0%

Other KPIs

Q4 FY2025
SegmentQ4 FY2025
Assets Under Administration (AUA)$1,814.6 billion
Assets Under Management (AUM)$781.0 billion
RIS Transfer Deposits (4Q25)$12.0 billion
RIS Operating Margin39.7%
Investment Management Operating Margin38.3%
International Pension Operating Margin42.7%
Specialty Benefits Operating Margin16.8%
Specialty Benefits Incurred Loss Ratio57.6%

Management tone

Q4 FY2024 strategic reset → Q1 execution → Q2 margin expansion with outflows → Q3 thinner forward disclosure → Q4 FY2025 forward framework restored and ROE band lifted.

FY guidance specifics came back — and got more granular. Q3's most notable signal was the disappearance of the discrete qualitative anchors (premium growth trend, performance fees, free capital flow %) that Q2 had offered; management instead leaned on a generic "remain confident in achieving our full-year guidance" line. This quarter the framework returned in expanded form: explicit EPS growth band (9-12%), explicit ROE band (15-17%, raised from 14-16%), explicit free capital flow conversion (75-85%), explicit capital deployment with a buyback/dividend split, and explicit segment-level margin targets revised upward across RIS (38-41%), Investment Management (35-39%), IP (46-50%), and Specialty Benefits (14-17%). The Q3 disclosure regression was a one-quarter pause, not a trend.

ROE target raised from 14-16% to 15-17% — in Q&A, Wilma Burgess at Raymond James got the explicit number, with management citing FY2025 actual ROE of 15.7% (at the high end of the prior range) as the justification. The anchor: divestitures will be "EPS and ROE accretive." Combined with the new free capital flow conversion target, this is the clearest disclosure surface management has offered on capital efficiency in the franchise.

Dental underwriting reframed from "improving" to "structurally lower." Tom Gallagher's Q&A drew the most concrete forward anchor: historical dental loss ratios in the low 70s are expected to move to the high 60s as longer-term performance, with more improvement in 2026 than 2025 driven by network optimization layering on top of pricing. This is a meaningful step beyond the Q3 framing, which celebrated the 56.4% all-Specialty Benefits ratio but did not split out a forward dental trajectory.

Portfolio optimization is now explicit, not implicit. Q3's posture was organic-over-M&A; this quarter Joel Hurwitz pressed on whether the legacy life block was for sale and got a measured response — not a current priority, but management would explore if it made strategic and financial sense. Management characterized the announced international divestitures (including the Chile annuity book, $65M revenue / $30M pre-tax) as portfolio cleanup that will fund elevated FY2026 buybacks. The capital story has tightened from "discipline" to "deploy freed capital into a raised buyback band."

Q&A highlights

Wes Carmichael · Wells Fargo

How should we think about the outlook for performance fees in 2026 given they were muted in 2025, and has management reconsidered redefining operating earnings related to real estate like peers have done?

Performance fees expected to remain in the 30-40 million range, similar to 2025 trends. Management reflected depreciation in operating earnings but uses an excess fee basis for guidance purposes. They expect VII improvements in 2026 but don't contemplate it in guidance. Management indicated merit to the peer approach and is considering implementing it for Q1 2026.

Performance fees typically 30-40 million in an average yearExpected 2026 similar to 2025 performance fee trendsVII improvements expected in 2026 vs 2025Guidance based on excess fee basis, not contemplating VII improvements

Sunit Kamath · Jeffries

What are your expectations for SMB employment growth in 2026 given recent job market headlines and AI impacts? Also, how are you differentiating wealth management offerings without channel conflict with financial advisors selling 401k plans?

Employment growth remains positive and stable with no meaningful AI impact seen in 2025. Recent well-being index shows 85% of customers expect staffing levels to stay same or increase, and 95% expect wages to stay stable or increase. Wealth management approach focused on existing 401k customers with less than $1-1.5M assets, added 100,000+ new customers, partnering with advisors on segments they're not targeting.

Employment growth remains positive and stable85% of SMB customers expect staffing levels to stay same or increase95% expect wages to stay stable or increaseAdded 100,000+ new wealth customers in the past year

Tom Gallagher · Evercore ISI

What should we expect from dental loss ratios in first half 2026 given strong underwriting and rate increases? Also, what drives Principal's superior free cash flow conversion of 92% compared to peers?

Dental pricing efforts showed through in late 2025, with network optimization expected to deliver more improvement in 2026. Loss ratios historically in low 70s but likely to move lower to high 60s range with pricing and network optimization. Free cash flow strength driven by capital-efficient business mix, disciplined capital allocation with high ROE hurdle rates for organic investments, and lower capital intensity of businesses.

Dental loss ratios expected to improve further in 2026 vs 2025Long-term dental loss ratio target range high 60s vs historical low 70s2025 free cash flow conversion 92% (run rate closer to 85%)2026 target 75-85% free cash flow conversion

Wilma Burgess · Raymond James

Can you explain the strategy behind small divestitures in international businesses and what gives confidence to raise ROE target from 14-16% to 15-17%?

Recent divestitures are continuation of portfolio optimization focusing on higher growth, higher return businesses. While divestitures impact some financial metrics (revenue, AUM, capital), they will be EPS and ROE accretive. ROE increase reflects strong 2025 results demonstrating conviction in trajectory, competitive positioning, capital efficiency of business model, and expectation of continued ROE expansion through top-line growth and profitable growth.

ROE target increased to 15-17% from 14-16%2025 actual ROE 15.7% at high end of prior 14-16% rangeDivestitures expected to be EPS and ROE accretiveChile annuity business 2025 revenue $65M, pre-tax earnings $30M

Joel Hurwitz · Dowling and Partners

What are the capital benefits from the divested businesses? Are there any plans to divest the legacy life block?

Management likes current portfolio and doesn't plan to divest legacy life block. Announced divestitures have de minimis earnings impact and are fully reflected in 2026 outlook. Freed capital will support elevated share buybacks in 2026 and fund organic priorities expected to generate higher returns than divested Chile annuity business.

Chile annuity runoff business: $65M revenue, $30M pre-tax earnings in 2025Divestitures fully reflected in 2026 outlook ($1.5-1.8B capital deployment)Elevated share buybacks planned in 2026 from freed capitalNo plans to divest legacy life block

Answers to last quarter's watch list

Whether positive net cash flow is sustained — Resolved, with a negative print. Q4 FY2025 AUM net cash flow was -$2.2B, with positive private flows of $1B partially offsetting. AUM finished at $781.0B vs. Q3's $784.3B. The headline NCF turned negative this quarter, though management framed it as primarily driven by $13B of disposed operations with no impact on future earnings. Status: Resolved (negative print, but no earnings impact).
International Pension revenue line — Resolved positively. Q4 FY2025 IP revenue grew +11% YoY to $152M, a clean reversal of Q3's -4% print. Operating margin of 42.7% is below Q3's 53.9% reported, but the revenue trajectory is back on track and management framed the Chile divestiture as accretive rather than defensive. Status: Resolved positively.
Specialty Benefits loss ratio durability — Resolved positively. Q4 FY2025 incurred loss ratio of 57.6% is up modestly from Q3's 56.4% but below the 60-64% target range, and management gave a forward anchor in Q&A: dental loss ratios moving from historical low-70s to high-60s as longer-term performance with more improvement in 2026 than 2025. Status: Resolved positively.
Q4 FY2025 capital return — Resolved. Press release disclosed $448M returned in Q4 FY2025 ($275M buybacks, $172M dividends), and FY2026 capital deployment framework was set at $1.5-1.8B (with $0.8-1.1B buybacks). Status: Resolved positively.
PRT Q4 disclosure — Resolved positively. Q4 FY2025 PRT sales were over $1B (included within the $12B transfer deposits headline), and FY2025 PRT totaled $3B across 70 cases, with nearly a quarter of premiums coming from existing clients. Status: Resolved positively.
Whether FY guidance specifics return on the Q4 FY2025 call — Resolved positively. Management restored and expanded the framework: explicit EPS growth (9-12%), raised ROE (15-17%), free capital flow conversion (75-85%), capital deployment with buyback/dividend split, and segment-level margin targets revised upward. The Q3 disclosure regression was a one-quarter pause. Status: Resolved positively.

What to watch into next quarter

Whether Q1 FY2026 actual EPS run-rate tracks toward the FY range of $9.32-$9.58 — straight-line Q1 would be roughly $2.33-$2.40, but management explicitly called out an H1/H2 skew: Q1 is seasonally the lowest quarter due to deferred comp, elevated payroll taxes ($30-35M of seasonal expenses called out in investment management), and higher dental claims in H1. Watch the Q1 print against that seasonal pattern rather than a flat run-rate.

Dental loss ratio trajectory specifically — management committed to high-60s as longer-term performance vs. historical low-70s, with more improvement in 2026 than 2025. Watch whether Q1 surfaces a dental-only loss ratio figure (not just the all-Specialty Benefits 57.6%) to validate the forward anchor.

Performance fees and VII — management telegraphed $30-40M for FY2026 (similar to FY2025) and is considering peer-style methodology change for Q1 FY2026 operating earnings definition. Watch whether the definitional change actually lands and what the restated base does to the comparability of segment margins.

Q1 FY2026 buyback pace against the $0.8-1.1B FY band — implied quarterly pace of $200-275M to hit the range; Q4 FY2025 actual was $275M per the press release. A Q1 print below $200M would suggest the freed capital from divestitures is being held for later in the year (consistent with the Q3 Chile close timing).

Asia institutional AUM and IP revenue trajectory — Q4's +11% IP revenue reversal needs to repeat in Q1, particularly with the Chile annuity divestiture closing Q3 FY2026 ($65M annual revenue rolling off). Watch the underlying growth rate ex-Chile.

Whether the new free capital flow conversion target (75-85%) is met — FY2025 actual was 92%, but management flagged calculation nuances that make 92% run higher than the underlying run-rate. A Q1 print suggesting conversion drift below 75% would call into question the buyback funding trajectory.

Sources

  1. Principal Financial Group Q4 FY2025 press release: https://www.sec.gov/Archives/edgar/data/1126328/000110465926012083/tm265638d1_ex99.htm
  2. Principal Financial Group Q4 FY2025 earnings call prepared remarks and Q&A (analyst attribution: Wells Fargo, Jefferies, Evercore ISI, Raymond James, Dowling and Partners)

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