Invesco Misses View, Profit Swells - Analyst Blog

Invesco Limited’s (IVZ) fourth-quarter earnings came in at 25 cents per share, 3 cents short of the Zacks Consensus Estimate of 28 cents. However, this compares favorably with the earnings of 8 cents in the prior-year quarter.

We noticed modest improvement of analysts’ sentiment on Invesco shares over the last 30 days, with 5 of the 15 analysts covering the shares having raised estimates for the fourth quarter of 2009. Also, the reported results should further add to the positive sentiment.

However, with respect to earnings surprises, the stock has fluctuated substantially over the last four quarters with two positive and two negative surprises. However, the average remained negative at 6%. This implies that Invesco has fallen short of the Zacks Consensus Estimate by 6% over the last four quarters. The upward estimate revision and negative average earnings surprise do not indicate any clear directional pressure on the shares. As a result, the shares retain Zacks # 3 Rank, which translates into a short-term ‘Neutral’ rating.

The year-over-year increase in Invesco’s earnings was due primarily to a 17.9% increase in operating revenues, partially offset by a 6.8% increase in operating expenses. Increased market values as a result of the gradual recovery of the global equity markets helped improve assets under management (AUM) 1.5% sequentially and 18.4% year over year to $423.1 billion as on Dec 31, 2009. However, the increase in AUM was partially offset by net outflows in money market funds.

For full year 2009, Invesco’s net income came in at $322.5 million or 76 cents per share, compared to $481.7 million or $1.21 per share in the previous year. Operating revenues for the year decreased 20.6% to $2.6 billion from $3.3 billion in 2008.

Invesco’s operating revenues for the reported quarter increased 6% sequentially and 17.9% year-over-year to $747.8 million. The increase in operating revenues was due primarily to the overall increase in average AUM and a favorable change in the mix of asset classes. Investment management fees increased 7.3% sequentially and 27.9% year over year to $611.8 million. Net revenues for the quarter increased 5.4% sequentially and 17.0% year over year to $563.9 million.

Operating expenses increased 6% sequentially and 6.8% year over year to $583.3 million. The sequential increase in operating expenses was due primarily to the impact of higher market values on distribution-related expenses and $9.8 million of transaction and integration charges incurred in the reported quarter related to the acquisition of the retail asset management business of Morgan Stanley (MS). Net operating margin for the quarter was 29.7%, compared to 29.9% in the prior quarter and 19.0% in the prior-year quarter.

Invesco’s assets under management as on Dec 31, 2009, were $423.1 billion, compared to $416.9 billion at the end of the prior quarter and $357.2 billion at the end of the prior-year quarter. During the reported quarter, average assets under management were $420.3 billion, compared to $406.9 billion in the prior quarter and $356.8 billion in the prior-year quarter.

Long-term net inflows were $2.6 billion, compared to same net inflows in the prior quarter and net outflows of $4.4 billion in the prior-year quarter. Money market net outflows were $7.7 billion, compared to net outflows of $2.6 billion in the prior quarter and net inflows of $2.4 billion in the prior-year quarter.

Headquartered in Atlanta, Georgia, Invesco operates as an independent investment manager and offers a broad range of investment products and services. We expect significant improvement in operating leverage from Invesco’s expense reduction initiatives. Furthermore, due to its broad diversification, the company should benefit from the improvement in global investment flows.