Ameriprise Financial Inc.’s (AMP) third quarter 2010 operating earnings of $1.37 per share were substantially ahead of the Zacks Consensus Estimate of $1.07. This also surpassed the prior-year quarter’s earnings of $1.04.
Operating results for the quarter exclude realized net investment gains/losses, non-recurring integration costs and impact of new accounting standards adopted in 2010. The results also include the first full quarter performance of the long-term asset management business of Columbia Management, which was acquired by Ameriprise in April 2010.
Results for the reported quarter primarily benefited from increased asset-based fees as a result of market appreciation, higher client activity and the company’s focus on high-performance advisors. Continued improvement in Advice & Wealth Management and Asset Management results were also impressive during the quarter. However, higher expenses were the downside.
GAAP net income came in at $344 million or $1.32 per share for the reported quarter compared with $260 million or $1.00 per share in the prior-year quarter. Operating earnings were $355 million, up 31% from $272 million in the year-ago quarter.
Quarter in Detail
On an operating basis, net revenues increased 26% year over year to $2.43 billion. The year-over-year growth reflects the substantial improvement in management and financial advisory fees, distribution fees and premiums. Additionally, the acquisition of Columbia Management and retail net inflows also significantly pushed up top-line growth. However, net revenues were lower than the Zacks Consensus Estimate of $2.59 billion.
GAAP expenses climbed 25% year over year to $2.00 billion while operating expenses rose 23% from the year-ago quarter to $1.94 billion. These reflect a significant increase in distribution expenses along with benefits, claims, losses and settlement expenses.
Total advisors declined 6% from the year-ago quarter to 11,608, reflecting the continuous departure of low-performance advisors. However, advisor retention rates remained strong.
Asset Position
Owned, managed and administered assets increased 48% year over year to $649 billion at September 30, 2010. The increase was a result of the acquisition of Columbia Management and market appreciation.
Managed assets at asset management business leaped 89% year over year to $445 billion, largely attributable to the acquisition of Columbia Management and appreciation in the S&P500. Total asset management net outflows were $3.2 billion. Wrap assets were up 18% from the year-ago quarter to $105 billion.
Capital
Ameriprise continues to maintain strong liquidity, which we believe will help it grow through acquisitions. During the reported quarter, Ameriprise’s excess capital position was more than $1.5 billion after deploying approximately $373 million in 2010 to repurchase more than 9.3 million shares of its common stock.
During the reported quarter, the company repurchased 3.6 million shares of its common stock for $153 million.
Ameriprise’s book value per share increased to $43.16 from $34.95 at the end of the prior-year quarter.
At the end of September 30, 2010, the debt-to-total capital ratio attributable to Ameriprise Financial was 20.0%. The debt-to-total-capital ratio excluding non-recourse debt, the impact of consolidated investment entities and the 75% equity credit for the hybrid securities was 19.0%.
Dividend Update
Concurrent with the earnings release, the board of Ameriprise declared a quarterly cash dividend of 18 cents per share. The dividend will be paid on November 22, 2010, to shareholders of record as on November 8, 2010.
Though there are concerns related to the sluggish equity market recovery, improvement in retail client activity will drive operating leverage in the upcoming quarters. We also expect the acquisition of Columbia Management to provide far-reaching product distribution opportunities.
Ameriprise currently retains a Zacks #2 Rank, which translates into a short-term “Buy” rating. Also, considering the fundamentals, we maintain our long-term “Outperform” recommendation on the stock.
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