Invesco Ltd.‘s (IVZ) third-quarter adjusted earnings came in at 42 cents per share, just a cent ahead of the Zacks Consensus Estimate. Though this compares unfavorably with earnings of 44 cents in the prior quarter, it was ahead of prior-year quarter’s earnings of 39 cents.
On a GAAP basis, earnings came in at 36 cents per share compared with 39 cents in the prior quarter and 32 cents in the year-ago quarter.
Invesco’s earnings improved over the prior-year quarter primarily on an increase in net revenue, partially offset by higher operating expenses. The company’s assets under management also remained healthy during the quarter.
Invesco’s adjusted net income decreased 7.1% sequentially but increased 3.9% year over year to $192.3 million.
Adjusted net revenue declined 6.0% sequentially but rose 3.5% year over year to $706.1 million. On a sequential basis, revenues fell primarily on reductions in investment management fees earned. Also, foreign exchange rate changes decreased net revenue by $4.3 million. Net revenue significantly missed the Zacks Consensus Estimate of $1.06 billion.
Quarter in Detail
Adjusted investment management fees fell 4.8% sequentially but surged 7.4% year over year to $804.1 million. Service and distribution fees dropped 8.3% sequentially and 1.3% year over year to $189.1 million.
Adjusted operating expenses decreased 3.4% sequentially but hiked 3.3% year over year to $450.4 million. The reduction was primarily attributable to lower employee compensation expenses along with decline in marketing expenses.
Adjusted operating margin for the quarter was 36.2% compared with 37.9% in the prior quarter and 36.0% in the prior-year quarter.
Assets under Management
Assets under management (AUM) were down 8.5% sequentially and 1.0% year over year to $598.4 billion as of September 30, 2011. Average AUM for the reported quarter was $632.7 billion compared with $652.8 billion in the prior quarter and $583.3 billion in the prior-year quarter.
Long-term net inflows during the quarter were $3.3 billion compared with $3.8 billion in the prior quarter and $4.9 billion in the prior-year quarter.
Dividend Update
Concurrent with the earnings release, the company declared a third-quarter dividend of 12.25 cents per share. The dividend will be paid on December 7, 2011, to shareholders of record as of November 18, 2011.
During the reported quarter, Invesco did not repurchase any shares. However, the company anticipates repurchase of $100 million worth of shares during the fourth quarter. The company still has $835.4 million authorized under share repurchase plan as of September 30, 2011.
Peer Performance
Last week, one of Invesco’s peers, The Blackstone Group (BX) reported third quarter 2011 economic net loss of 31 cents per share, way below the Zacks Consensus Estimate of income of 5 cents and the prior-year quarter’s economic net income of 31 cents. Results were severely impacted by negative revenues due to sluggish equity markets. However, growth in AUM and lower operating expenses were the positives.
Our Take
Improving long-term investment performance, propelled by the gradual global equity market recovery, will likely boost Invesco’s operating results over the mid to long term. Although the operating leverage is expected to improve significantly over the long term because of Invesco’s cost control initiatives, rising operating expenses will remain a near-term headwind.
Furthermore, Invesco is poised to benefit from improved global investment flows, resulting from its broad diversification; yet, we remain concerned about increased redemptions and a volatile U.S. dollar.
Invesco currently retains a Zacks # 4 Rank, which translates into a short-term ‘Sell’ rating. However, considering the fundamentals, we maintain our long-term “Neutral” recommendation on the stock.
