Principal Financial Group heads into its third-quarter report with two stories pulling in opposite directions. Its benefits and retirement businesses are producing some of the best results in years. Meanwhile its asset management arm just suffered roughly $11 billion of net outflows, a sharp break from the modest bleeding of prior quarters. The question for this report is whether the first story can keep drowning out the second, or whether the flow problem starts showing up in fees and multiples.
Wall Street expects earnings of $2.49 a share on revenue of about $4.33 billion. That would be growth of roughly 19% in profit and 18% in revenue from a year ago, when the company earned $2.10 on $3.68 billion. The EPS estimate is essentially flat with last quarter's $2.50. Revenue is expected to jump from $3.91 billion, a bigger move than the underlying business usually generates, so the top line is a less reliable signal than operating earnings and margins. An 18% to 19% earnings gain would again sit well above management's long-term 9% to 12% EPS growth target. Adjusted growth has already climbed from 13% in the first quarter to 17% in the second, so the Street is effectively betting that the acceleration holds.
Most of that bet rides on Benefits and Protection. Specialty benefits posted record pre-tax operating earnings of $162 million last quarter, up 29%, with a loss ratio of 57.4%. Management went further and said the full-year loss ratio should land below the low end of its 60% to 64% range, a step up from the prior quarter's view of at or slightly below it. Executives credited lower incidence and frequency of claims, which tends to be stickier than improvement driven by claim size. A third-quarter loss ratio near the high 50s would support that view. A drift back toward 60% would suggest the second quarter flattered the trend. The pending Beam Benefits deal and the Dentanet dental network add growth, though management said Beam does not change its 2026 EPS or capital targets.
Asset management is where the narrative could crack. Management blamed the outflows on a handful of US active equity strategies, about 5% of firm assets, caught in an unusual market where the lowest-quality stocks sharply outran high-quality names. Executives warned that flows would stay somewhat challenged with no clear timing for a turn. Gross sales growth also slowed to 2% from 21% the quarter before, and the fee rate slipped into the low 28 basis point range. A narrowing of outflows, or evidence that the committed-but-unfunded pipeline of about $10 billion is converting, would ease the worry. Another double-digit outflow quarter, especially if it spreads beyond the troubled equity strategies, would weaken the claim that this is a contained, style-driven problem. International pension assets, a record $169 billion last quarter, and retirement margins near 41% are the other pillars worth checking.
Capital return is a quieter catalyst. Proceeds from the Chile annuity sale were expected this quarter to fund elevated buybacks, which supports per-share earnings. The 2026 ROE target of 15% to 17% was tracking at 16.4%.
The market has not fully bought in. Shares are down about 2% since the last report while the S&P 500 gained 3%. At $108.81, the stock sits near the bottom of its post-earnings range of $106.07 to $121.18, though still above its 200-day average of $102.52. Sentiment has improved notably from last quarter but remains only moderately bullish. That mix suggests investors are discounting the flow risk more than the underwriting strength. If specialty margins hold and outflows show signs of stabilizing, the case that diversification is working as designed gets stronger. If outflows deepen, strong benefits results may not be enough to lift the stock.