Invesco Limited’s (IVZ) second quarter 2010 earnings came in at 27 cents per share, in line with the Zacks Consensus Estimate and the prior-quarter earnings. This also compares favorably with earnings of 21 cents in the prior-year quarter.
On a GAAP basis, earnings came in at 9 cents per share, compared with 21 cents in the prior quarter and 18 cents in the year-ago quarter. GAAP results for the reported quarter included $79.3 million of transaction and integration charges related to the acquisition of the retail asset management business of Morgan Stanley (MS). The reported quarter results include one month of activity from this acquired business.
Invesco’s year-over-year earnings spiked up as net revenues increased attributable to the completion of the retail asset management business of Morgan Stanley, which was partially offset by a rise in operating expenses.
Quarter in Detail
Invesco’s adjusted net income inched up 4.5% from the prior quarter and 43.6% from the prior-year quarter to $125.4 million.
Invesco’s adjusted net revenues upped 8.2% sequentially and 25.3% year over year to $589.0 million. On a sequential basis, revenues escalated due as the acquired business contributed $48.0 million to the total revenue, which was partially offset by exchange rate changes. Net revenues missed the Zacks Consensus Estimate of $769 million.
Adjusted investment management fees rose 5.7% sequentially and 26.6% year over year to $653.0 million. Service and distribution fees climbed 23.9% sequentially and 38.8% year over year to $139.4 million.
Adjusted operating expenses shot up 11.1% sequentially and 15.3% year over year to $400.3 million. Sequential increase was mainly due to the addition of $29.4 million by the acquired business, which was offset by foreign exchange rate changes of $3.9 million.
On a sequential basis, employee compensation expenses increased 11.1% as 580 new employees joined Invesco on June 1, 2010, related with the acquired business and their expenses were included for one month of the quarter. Marketing expenses moved up 25.0% from the prior quarter.
Adjusted operating margin in the quarter was 32.0% compared with 33.6% in the prior quarter and 26.9% in the prior-year quarter.
Asset Position
Increased market values as a result of the gradual recovery of the global equity markets improved assets under management (AUM) by 21.8% from the prior quarter and 34.6% year over year to $557.7 billion as of June 30, 2010. Average AUM for the reported quarter was $480.5 billion compared with $449.6 billion in the prior quarter and $401.5 billion in the prior-year quarter.
Long-term net inflow was $13.9 billion compared with $3.6 billion in the prior quarter and $4.4 billion in the prior-year quarter. Money market net outflow was $0.9 billion compared with net outflow of $10.6 billion in the prior quarter and net inflow of $1.7 billion in the year-ago quarter.
Dividend Update
Concurrent with the earnings release, the company declared a second quarter cash dividend of 11 cents per share to holders of common shares. The dividend is payable on September 9, 2010, to shareholders of record at the close of business on August 23, 2010.
Invesco completed the acquisition of retail asset management unit of Morgan Stanley on June 1. The company paid $770 million in cash and issued 30.9 million shares to Morgan Stanley.
Invesco operates as an independent investment manager and offers a diverse array of investment products and services. We expect a significant increase 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 flow. Also, the recently completed acquisition will be accretive to the future earnings.
Invesco currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock in the long term.
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Read the full analyst report on “MS”
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