Principal Declines After ‘Disappointing’ 2013 Outlook

Principal Financial Group Inc. (PFG), the insurer that last month agreed to buy a Chilean pension provider, fell the most in the KBW Insurance Index (KIX) after giving a 2013 outlook that fell short of some estimates.

Principal dropped 3.9 percent to $26.26 at 10:16 a.m. in New York, the most on the 24-company index. The stock has advanced 6.8 percent this year.

The insurer’s forecast was “sobering and disappointing,” John Nadel, an analyst at Sterne Agee & Leach Inc., wrote in a research note today.

Principal said earnings may be $881 million to $944 million next year, compared with Nadel’s estimate of $1 billion in operating income, as low interest rates weigh on results. The Des Moines, Iowa-based insurer is counting on growth in emerging markets after last month reaching a $1.5 billion deal to buy Chile’s AFP Cuprum (CUPRUM) SA.

“It was, indeed, disappointing that Principal acknowledged that its earnings may be flat next year,” Eric Berg, an analyst at RBC Capital Markets, wrote in a research note. “It wasn’t exactly what we wanted to hear.”

Berg maintained an outperform rating, citing the company’s five-year outlook for “rapid growth.” He reduced his price target to $37 from $39.

Principal said it will probably spend $400 million to $600 million on buybacks, dividends and acquisitions in 2013, after committing to $2.1 billion in outlays this year. The insurer authorized $300 million of repurchases in 2012 and boosted its quarterly dividend to 21 cents a share from 18 cents in August.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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