Invesco Beats Earnings, Revenues Lag
Invesco Ltd.’s (IVZ) first-quarter 2013 adjusted earnings were 52 cents per share, surpassing the Zacks Consensus Estimate by a nickel. This also compares favorably with adjusted earnings of 45 cents recorded in the prior quarter.
Better-than-expected results came on the back of a rise in revenues, partly offset by a slight increase in operating expenses. Further, improved assets under management (:AUM) and stable balance sheet position were the tailwinds.
On a GAAP basis, net income in the first quarter was $222.2 million or 49 cents per share, up from $158.7 million or 35 cents in the prior quarter.
Performance Details
Adjusted net revenue grew 5.2% sequentially to $816.5 million in the reported quarter. Increases in investment management fees and performance fee revenues were the driving forces behind the rise. However, net revenue was significantly below the Zacks Consensus Estimate of $1.13 billion.
Adjusted operating expenses nudged up 0.7% from the prior quarter to $502.9 million. The marginal rise was primarily due to higher employee compensation expenses, partially offset by decreases in general and administrative expenses and marketing costs.
Adjusted operating margin for the quarter was 38.4%, rising from 35.6% in the prior quarter.
As of Mar 31, 2013, AUM grew 6.0% sequentially to $729.3 billion, reflecting net market gains, partially offset by unfavorable foreign exchange rate changes. Average AUM for the reported quarter was $712.7 billion, up 4.8% from $680.2 billion in the prior quarter.
Long-term net inflows in the quarter were $14.8 billion compared with $3.3 billion in the preceding quarter.
Balance Sheet
As of Mar 31, 2013, cash and cash equivalents were $884.7 million compared with $835.5 million as of Dec 31, 2012. Total debt was $1,514.5 million as of Mar 31, 2013, against $1,186.0 million as of Dec 31, 2012.
Additionally, credit facility balance reached $915.0 million as of Mar 31, 2013, compared with $586.5 million as of Dec 31, 2012.
Share Repurchase Update
In the reported quarter, Invesco repurchased $45 million worth of shares, representing 1.6 million shares.
Dividend Update
Concurrent with the earnings release, the company declared first-quarter dividend of 22.5 cents per share. The dividend will be paid on Jun 7 to shareholders of record as of May 17. This dividend represents a hike of nearly 30% from the prior dividend.
Other Developments
On Apr 11, Invesco announced that it has entered into a definitive agreement to divest Atlantic Trust Private Wealth Management to Canadian Imperial Bank of Commerce (CM) for $210 million. The deal, expected to close in the second half of 2013, is still subject to regulatory approval.
Performance of Other Investment Management Stocks
First-quarter earnings per share of BlackRock Inc. (BLK) and The Blackstone Group L.P. (BX) surpassed the Zacks Consensus Estimate. The improved results were primarily attributable to increased top line, partially offset by higher operating expenses.
Our Viewpoint
Invesco’s long-term investment performance was boosted by an uptrend in the global equity markets, which is envisioned to uplift the company’s operating results. Moreover, the operating leverage is expected to improve significantly over the long term due to the company’s cost-control initiatives.
Invesco is well positioned to benefit from improved global investment flows owing to its broad diversification. Additionally, meaningful capital deployment activities will enhance shareholders’ confidence in the stock. However, the volatile U.S. dollar and increasing competition remain matters of concern.
Invesco currently retains a Zacks Rank #2 (Buy).
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