Invesco (IVZ) Beats On Q2 Earnings; Revenue & AUM Decline

Invesco Ltd. (NYSE:IVZ) reported second-quarter 2016 adjusted earnings of 56 cents per share, beating the Zacks Consensus Estimate by a penny. Also, the bottom line came in 11.1% below the prior-year tally.

Decline in operating expenses largely benefited the results. Further, long-term net outflows acted as a tailwind. However, soft revenues as well as weakness in assets under management (AUM”) were the undermining factors.

On a GAAP basis, net income attributable to common shareholders came in at $225.5 million or 54 cents per share, down from $257.3 million or 60 cents per share in the year-ago quarter.

Lower Operating Costs Help Offset Revenue Dip

GAAP operating revenues were $1.19 billion, down 9.8% year over year. Also, the figure came in slightly below the Zacks Consensus Estimate of $1.20 billion.

Adjusted net revenue fell 8.5% year over year to $856.6 million. The decrease was largely due to a fall in all revenue components except performance fees.

Adjusted operating expenses were $526.2 billion, down 5.9% from the prior-year quarter. The decline was attributable to a fall in all expense components except property, office and technology costs, which witnessed a rise.

Adjusted operating margin for the quarter was 38.6% compared with 41.7% in the year-ago quarter.

Asset Position Weakens

As of Jun 30, 2016, AUM decreased 3% year over year to $779.6 billion. Average AUM for the quarter totaled $784.5 billion, down 3.3% from the year-ago quarter. Further, the reported quarter witnessed long-term net inflows of $4.5 billion compared with $5.9 billion in the prior-year quarter.

Share Repurchases

In the reported quarter, Invesco repurchased shares worth $200 million at an average price of $27.14 per share. This included $120.0 million, representing 4.7 million shares, out of the $150.0 million accelerated share repurchase agreement that was announced on Jun 30, 2016.

Our View

Invesco remains well positioned to benefit from improved global investment flows, supported by a diversified footprint and product offering. Also, the company’s steady capital deployment activities will continue to boost investors’ confidence in the stock.

However, high debt levels and incremental implementation costs expected from the business transformation program are anticipated to weigh on Invesco’s performance in the upcoming quarters. Though the company has undertaken cost-cutting measures, their impact is not expected to bear fruits any time soon as Invesco continues to invest in its franchise.

Currently, Invesco carries a Zacks Rank #5 (Strong Sell).

Performance of Other Asset Managers

BlackRock, Inc. (NYSE:BLK) reported second-quarter 2016 adjusted earnings of $4.78 per share, which lagged the Zacks Consensus Estimate by a penny. Lower-than-expected results primarily depicted a decline in revenues. However, efficient cost containment was on the positive side.

Waddell & Reed Financial Inc. (NYSE:WDR) reported second-quarter 2016 adjusted earnings of 59 cents per share, surpassing the Zacks Consensus Estimate of 48 cents. Better-than-expected results were primarily driven by lower expenses. However, a decline in revenues, elevated outflows and deterioration in AUM were the undermining factors.

Janus Capital Group, Inc.’s (NYSE:JNS) second-quarter 2016 earnings per share attributable to common shareholders of 21 cents missed the Zacks Consensus Estimate by a penny. Lower-than-expected results reflect the reduction in revenues, partly offset by decline in operating expenses.