A month has gone by since the last earnings report for Affiliated Managers Group (AMG). Shares have lost about 10.1% 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 Fall
Affiliated Managers’ fourth-quarter 2019 economic earnings of $4.52 per share surpassed the Zacks Consensus Estimate of $4.03. Also, the bottom line grew 28% year over year.
Results benefited from higher adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), and robust liquidity position. However, lower revenues, fall in AUM balance and rise in expenses were the undermining factors.
Economic net income was $221.8 million, up 19.4% from the prior-year quarter.
In 2019, economic earnings were $14.22 per share, down 1.9% year over year. However, the figure beat the consensus estimate of $13.77. Economic net income declined 7.7% to $720.2 million.
Revenues & AUM Down, Expenses Rise
Total revenues for the quarter fell 1.6% year over year to $555.5 million. However, the top line beat the Zacks Consensus Estimate of $537.6 million.
In 2019, total revenues were $2.34 billion, down 5.8%. The figure outpaced the consensus estimate of $2.22 billion.
Adjusted EBITDA was $200.3 million, up 4.7% from the year-ago quarter.
Total expenses increased 4.1% to $445 million. Rise in compensation and related expenses, and intangible amortization and impairments primarily led to the increase.
As of Dec 31, 2019, total AUM was $722.5 billion, down 1.8% year over year. Net outflows of $11.3 billion hurt AUM.
Capital & Liquidity Position Decent
As of Dec 31, 2019, Affiliated Managers had $539.6 million in cash and cash equivalents compared with $565.5 million as of Dec 31, 2018. The company had $1.79 billion of debt, down 2% from the Dec 31, 2018 level.
Shareholders’ equity as of Dec 31, 2019, was $2.94 billion, down from $3.46 billion as of Dec 31, 2018.
Share Repurchase Update
During the fourth quarter, the company repurchased shares worth $110 million.
First-Quarter 2020 Outlook
Management expects adjusted EBITDA of $215-$225 million. Performance fee is anticipated to be $15-$25 million.
Interest expenses are expected to be $19 million, suggesting no change from the prior quarter level. The company’s share of reported amortization and impairments are expected to be $50 million.
Adjusted weighted average share count is estimated to be $47.7 million.
GAAP tax rate is expected to be 25%. Additionally, cash tax rate is expected to be 20%.
Intangible-related deferred taxes are expected to be $6 million. Other economic items are anticipated to be $1 million.
The company expects share repurchases of $150-$200 million for the first half of 2020.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
Currently, 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 quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Affiliated Managers has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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