Expenses Play Spoiler for Ameriprise - Analyst Blog
July 28 2011 - 9:00AM
Zacks
Ameriprise Financial Inc.’s (AMP) second
quarter 2011 operating earnings of $1.31 per share have missed the
Zacks Consensus Estimate by 2 cents. However, the earnings have
fared well against the prior-year quarter’s earnings of $1.03.
Operating results exclude the consolidation of certain
investment entities, net realized gains or losses, integration and
restructuring charges, market impact on variable annuity guaranteed
living benefits and discontinued operations.
Net income attributable to Ameriprise for the reported quarter
came in at $313 million or $1.25 per share compared with $257
million or 97 cents per share in the comparable quarter last
year.
The second quarter results primarily benefited from increased
asset-based fees and impressive results in Asset Management and
Advice & Wealth Management segments. Also, the Columbia
Management acquisition proved to be a tailwind for the company.
However, higher expenses proved to be the dampener.
Quarterly Details
On an operating basis, Ameriprise’s net revenues for the second
quarter rose 14% year over year to $2.59 billion. The improvement
reflects a growth in asset-based fees from retail client net
inflows, the acquisition of Columbia Management and market
appreciation. However, net revenues stood below the Zacks Consensus
Estimate of $2.64 billion.
GAAP expenses in the quarter climbed 11.2% year over year to
$2.22 billion, while operating expenses escalated 12% from the
year-ago quarter to $2.14 billion. These represent a significant
increase in distribution expenses, general and administrative
expenses along with benefits, claims, losses and settlement
costs.
Asset Position
Total assets under management and administration grew 17% year
over year to $670 billion as of June 30, 2011, attributable to the
improvement in retail client net inflows and market
appreciation.
Capital
Ameriprise continues to maintain a strong liquidity with nearly
$2.0 billion in excess capital, which, we believe, will help the
company grow through acquisitions.
Share Repurchase
During the quarter under review, Ameriprise repurchased 6.1
million shares of its common stock for $366 million under the $1.5
billion authorization announced by the company in May 2010. The
company has $165 million shares remaining under its current
authorization.
Additionally during the quarter, Ameriprise announced a new
share repurchase program, which is an extension of the earlier one.
Under this new program, the company will be able to buy back its
common shares worth $2 billion through June 28, 2013.
Peer Performance
One of Ameriprise’s competitors, BlackRock Inc.
(BLK) reported second quarter adjusted earnings of $3.00 per share,
fairly ahead of the Zacks Consensus Estimate of $2.92.
Better-than-expected results were primarily aided by a strong
top-line growth emanating from a better investment performance and
asset mix, which were offset partially by higher operating
expenses.
Our Viewpoint
Though there is concern over the sluggish market recovery, an
improvement in retail client activity and decent growth in Advice
& Wealth Management and Asset Management businesses would drive
operating leverage in the upcoming quarters. We also expect the
Columbia Management acquisition to provide far-reaching product
distribution opportunities. Furthermore, Ameriprise’s capital
deployment activity would also boost investors’ confidence in the
stock.
Ameriprise currently retains a Zacks # 3 Rank, which translates
into a short-term ‘Hold’ rating. Also, considering the
fundamentals, we maintain our long-term “Neutral” recommendation on
the stock.
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