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Invesco Reports In Line, Hikes Div

Zacks Equity Research

Invesco Ltd.’s (IVZ) first quarter adjusted earnings came in at 44 cents per share, in line with the Zacks Consensus Estimate. This compares favorably with the adjusted earnings of 42 cents in the previous quarter and 41 cents in the prior-year quarter.

On a GAAP basis, earnings came in at 43 cents per share, compared with 44 cents in the prior quarter and 38 cents in the year-ago quarter.

Higher net revenue was mainly responsible for the improvement in the results. However, higher operating expenses were the primary dampeners. Moreover, the company’s assets under management and balance sheet position remained healthy during the quarter.

Invesco’s adjusted net income grew 5.5% sequentially and 4.9% year over year to $201.0 million.

Performance in Detail

Adjusted net revenue improved 2.7% sequentially and 1.7% year over year to $736.3 million. Higher investment management fees was one of the primary reasons for the sequential rise. On a year-over-year basis, revenues climbed primarily due to a substantial increase in performance fees. Also, foreign exchange rate changes had a positive impact on net revenue during the quarter. However, net revenue was nowhere near the Zacks Consensus Estimate of $1.05 billion.

Adjusted investment management fees increased 5.4% sequentially but decreased 0.5% marginally year over year to $812.1 million. Likewise, service and distribution fees grew 4.4% sequentially but fell 4.9% year over year to $189.0 million.

Adjusted operating expenses hiked 1.4% sequentially and 3.3% year over year to $467.1 million. The increase was primarily attributable to higher employee compensation expenses as well as increased marketing expenses.

Adjusted operating margin for the quarter was 36.6% compared with 35.8% in the prior quarter and 37.6% in the prior-year quarter.

Assets under Management

Assets under management (:AUM) escalated 7.6% sequentially and 4.8% year over year to $672.8 billion, as of March 31, 2012. Average AUM for the reported quarter was $658.2 billion compared with $621.7 billion in the prior quarter and $630.2 billion in the prior-year quarter.

Long-term net inflows during the quarter were $7.0 billion compared with $5.6 billion in the prior quarter and $6.6 billion in the year-ago quarter.

Balance Sheet

As of March 31, 2012, cash and cash equivalents were $592.3 million compared with $727.4 million as of December 31, 2011. Total debt was $1,325.7 million as of March 31, 2012, compared with $1,284.7 million as of December 31, 2011.

Additionally, credit facility balance was $580.0 million as of March 31, 2012, as against $539.0 million as of December 31, 2011.

Dividend Update

Concurrent with the earnings release, the company declared a first-quarter dividend of 17.25 cents per share, up 41% from the prior quarter. The dividend will be paid on June 8, 2012, to shareholders of record as of May 18, 2012.

Share Repurchase Update

During the reported quarter, Invesco repurchased $75.0 million worth of shares, representing 3.13 million shares at an average price of $24.35.

Peer Performances

Unlike Invesco, The Blackstone Group’s (BX) first quarter 2012 economic net income missed the Zacks Consensus Estimate. Results declined due to the shrinking top line, which were, to some extent, softened by lower expenses. Despite the disappointing results, sturdy improvement in AUM was a huge respite.

Likewise, T. Rowe Price Group Inc.’s (TROW) first quarter 2012 earnings marginally lagged the Zacks Consensus Estimate. Better-than-expected top-line growth was more-than-offset by higher non-interest expenses. However, increased AUM was the positive for the quarter.

Our Take

An uptrend in the global equity markets helped the long-term investment performance of Invesco to improve. It is further expected to uplift the company’s operating results. Moreover, the operating leverage is expected to improve significantly over the long term due to Invesco’s cost-control initiatives.

Invesco is well-positioned to benefit from improved global investment flows, resulting from its broad diversification. However, volatile U.S. dollar and increasing competition remain the major areas of concern.

Invesco currently retains a Zacks #1 Rank, which translates into a short-term ‘Strong Buy’ rating.

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