PFG Q2 Deep Dive: Asset Management Momentum and Disciplined Expense Controls Shape Outlook

Financial services company Principal Financial Group (NASDAQGS:PFG) missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 9.4% year on year to $3.69 billion. Its non-GAAP profit of $2.16 per share was 9.6% above analysts’ consensus estimates.

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StockStory’s Take

Principal Financial Group’s Q2 results showed a mixed picture, with revenue missing Wall Street expectations but non-GAAP profit coming in ahead of consensus. Management credited disciplined expense control and margin expansion across core businesses for supporting earnings, even as market volatility and lower average asset levels weighed on fee revenue. CEO Deanna Strable highlighted strong performance in retirement and specialty benefits, noting, “We delivered strong results in the second quarter… supported by revenue growth, strong margin and expense discipline across the businesses, while investing for growth.” While net cash flows remained negative, the company saw improvement from global institutional clients and positive momentum in specific investment strategies such as high yield fixed income and private real estate equity.

Looking forward, Principal’s outlook is anchored in maintaining expense discipline and capitalizing on a robust sales pipeline in retirement and asset management. CFO Joel Pitz emphasized the company’s commitment to aligning expenses with revenue, stating, “We’ll continue to act and responsibly align expense with revenue… while investing in the business and we feel really good about our expense structure going forward.” Management believes that continued product innovation, particularly in guaranteed retirement solutions and alternative asset strategies, will drive growth, but acknowledges that market conditions and competitive dynamics will require ongoing vigilance. The company expects improvements in net flows and performance fees in the second half of the year, while remaining cautious about the pace of recovery in certain segments.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to expense discipline, growth in targeted retirement solutions, and advances in asset management, while market volatility and competitive pressures affected flows and fee revenue.

• Expense discipline drives margins: Management emphasized tight cost control, with expenses growing at a slower rate than revenue, resulting in margin expansion across segments. CFO Joel Pitz noted this approach allowed the company to absorb market headwinds and maintain profitability, particularly during periods of volatility.
• Strong retirement sales pipeline: The retirement business delivered 7% year-over-year sales growth, led by workplace savings solutions and resilient small and mid-sized market performance. Management highlighted transfer deposit growth and high participant retention as key positives, even as net cash flows were pressured by elevated market levels.
• Asset management diversification: Principal Asset Management experienced robust sales, particularly from international clients and alternative debt strategies. Kamal Bhatia, Head of Asset Management, highlighted a near doubling of the Asia institutional business and growing mandates in private infrastructure debt and direct lending, which helped offset domestic outflows and market-driven rebalancing.
• Specialty benefits margin expansion: Specialty Benefits saw a 10% earnings increase and a 100 basis point margin improvement, attributed to pricing discipline and favorable underwriting, especially in group disability and group life products. Dental loss ratios remain a focus, with management expecting a seasonal improvement in the second half.
• Product innovation in retirement: Principal launched a new target date fund with an in-plan guarantee, aiming to strengthen its competitive position in retirement income solutions. While early adoption is modest, management sees significant long-term opportunity as advisors and plan sponsors gain familiarity with these offerings.

Drivers of Future Performance

Principal’s forward guidance is shaped by ongoing expense management, product innovation in retirement solutions, and the pace of asset management flows, with market conditions and client activity as key swing factors.

• Disciplined expense management: Management reiterated its commitment to aligning expenses with revenue, especially amid market volatility. This approach is expected to support margins and free up resources for targeted investments, even if revenue growth remains subdued.
• Growth in retirement and asset management: The company is banking on a robust sales pipeline in retirement, particularly among small and mid-sized employers, and continued global momentum in asset management mandates. Product innovation, such as guaranteed solutions and expanded advice offerings, is expected to enhance competitive positioning and drive long-term growth.
• Market and flow uncertainty: Management noted that market-driven volatility and competition in asset management remain headwinds, with the pace of improvement in net flows and performance fees dependent on macroeconomic factors and client rebalancing activity. The company is cautiously optimistic about a second-half pickup but acknowledges the environment remains unpredictable.

Catalysts in Upcoming Quarters

Looking ahead, our analyst team will monitor (1) the trajectory of net flows and new mandates in asset management, especially from international and institutional clients, (2) the pace of sales and participant growth in retirement solutions, including adoption of new guaranteed products, and (3) the company’s ability to maintain margin discipline while investing in product innovation. Execution on these fronts will help clarify whether Principal can convert its strategic initiatives into sustainable earnings growth despite ongoing market volatility.

Principal Financial Group currently trades at $77.13, down from $80.39 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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