It has been about a month since the last earnings report for Affiliated Managers Group (AMG). Shares have lost about 1.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Affiliated Managers due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Affiliated Managers Q4 Earnings Beat Estimates, Revenues Down
Affiliated Managers’ fourth-quarter 2018 economic earnings of $3.53 per share outpaced the Zacks Consensus Estimate of $3.51. However, the figure was down 24.6% year over year.
Slight fall in expenses supported the results. Also, the liquidity position remained strong. However, lower revenues and decline in assets under management were the undermining factors.
Affiliated Managers’ economic net income was $185.8 million, witnessing a decline of 28.9% from the prior-year quarter.
For 2018, economic earnings of $14.50 per share lagged the Zacks Consensus Estimate by a penny. Also, it was nearly 1% down on a year-over-year basis. Economic net income was $824.4 million, witnessing a fall of 5.3%.
Revenues & Expenses Down
Total revenues for the reported quarter fell 6.6% year over year to $564.4 million. However, the top line beat the Zacks Consensus Estimate of $555.9 million.
For 2018, total revenues increased 3.2% year over year to $2.38 billion. Also, it surpassed the Zacks Consensus Estimate of $2.36 billion.
Adjusted earnings before interest, taxes, depreciation and amortization were $191.3 million, plunging 47.1% from the year-ago quarter.
Total operating expenses decreased marginally year over year to $427.3 million. Rise in compensation and related expenses was offset by lower net other expenses.
As of Dec 31, 2018, total AUM was $736 billion, down 12% year over year. Net outflows of $12.5 billion and market depreciation hurt AUM.
Capital & Liquidity Position Decent
As of Dec 31, 2018, Affiliated Managers had $565.5 million in cash and cash equivalents compared with $439.5 million as of Dec 31, 2017. Notably, the company had $1.52 billion of senior bank debt, down 1.8% from the Dec 31, 2017 level.
Shareholders’ equity as of Dec 31, 2018, was $3.46 billion, down from $3.82 billion as of Dec 31, 2017.
Share Repurchase Update
During the reported quarter, the company repurchased shares worth $75.5 million.
Management expects adjusted EBITDA to average AUM to be nearly 11.3-11.7 bps, assuming net performance fees of 10-20 bps.
Interest expenses are anticipated to be $18 million.
The company’s share of reported amortization and impairments are expected to be nearly $45 million.
Other economic items are expected to be approximately $1 million.
Adjusted weighted average share count is estimated to be 51.8 million mainly due to continuous share repurchases.
While GAAP tax rate is expected to be 26%, cash tax rate is forecasted at 18%.
Intangible-related deferred taxes (excluding the one-time item) are expected to be approximately $11 million.
Performance fee is expected to be between $0.75 and $1.75 per share.
The company expects to repurchase nearly $100-$300 million worth of shares in the first half of 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Affiliated Managers has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Affiliated Managers has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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