Invesco Limited’s (IVZ) third quarter 2010 earnings came in at 39 cents per share, 4 cents ahead of the Zacks Consensus Estimate of 35 cents. This also compares favorably with earnings of 27 cents in the prior-year quarter.
On a GAAP basis, earnings came in at 32 cents per share, compared with 24 cents in the year-ago quarter. GAAP results for the reported quarter included $26.8 million in transaction and integration charges related to the acquisition of the retail asset management business of Morgan Stanley (MS) in the previous quarter. Results for the reported quarter include the acquired business for the full quarter.
Invesco’s earnings soared over the prior-year quarter, primarily due to the increase in net revenues as a result of inclusion of the retail asset management business of Morgan Stanley, which was partially offset by an increase in operating expenses.
Quarter in Detail
Invesco’s adjusted net income jumped up 48% from the prior quarter and 57% from the prior-year quarter to $185.0 million.
Invesco’s adjusted net revenues upped 20% sequentially and 32% year over year to $707.1 million. On a sequential basis, revenues escalated primarily as the acquired business contributed an estimated $96.0 million to total revenues. Also, foreign exchange rate changes helped increase net revenues for the reported quarter by $8.1 million. Net revenues missed the Zacks Consensus Estimate of $961 million.
Adjusted investment management fees rose 15% sequentially and 28% year over year to $748.7 million. Service and distribution fees climbed 37% sequentially and 71% year over year to $191.6 million.
Adjusted operating expenses shot up 15% sequentially and 26% year over year to $461.3 million. The sequential increase was mainly due to the addition of expenses by the acquired business.
On a sequential basis, employee compensation expenses increased 15% to $297.7 million. The acquired business accounted for the majority of the increase. Marketing expenses moved up 27.0% from the prior quarter to $45.1 million.
Adjusted operating margin for the quarter was 34.8% compared with 32.0% in the prior quarter and 32.1% in the prior-year quarter.
Assets Under Management
Increased market values as a result of the gradual recovery of the global equity markets improved assets under management (AUM) by 8% sequentially and 35% year over year to $604.5 billion as of September 30, 2010. Average AUM for the reported quarter was $583.3 billion compared with $480.5 billion in the prior quarter and $437.1 billion in the prior-year quarter.
Long-term net inflow was $4.9 billion compared with $13.9 billion in the prior quarter and $4.0 billion in the prior-year quarter. Money market net outflow was $2.4 billion compared with $0.9 billion in the prior quarter and $2.6 billion in the year-ago quarter.
Dividend Update
Concurrent with the earnings release, the company declared a third quarter cash dividend of 11 cents per share. The dividend will be paid on December 8, 2010, to shareholders of record on November 19, 2010.
Invesco operates as an independent investment manager and offers a diverse array of investment products and services. We expect a decent improvement in operating leverage from the company’s cost control initiatives and benefit from the improvement in global investment flows due to its broad diversification. However, we remain concerned about increased redemptions and the volatile U.S. dollar.
Invesco currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. However, considering the fundamentals, we maintain our long-term “Neutral” recommendation on the stock.
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