BLK BlackRock Inc

Invesco Ltd.’s (IVZ) second-quarter adjusted earnings came in at 44 cents per share, just a penny ahead of the Zacks Consensus Estimate. This also compares favorably with earnings of 27 cents in the prior-year quarter.

On a GAAP basis, earnings came in at 39 cents per share compared with 38 cents in the prior quarter and 9 cents in the year-ago quarter.

Invesco’s earnings soared over the prior-year quarter primarily on an increase in net revenue, partially offset by higher operating expenses. The company’s assets under management also continued to grow during the quarter.

Quarter in Detail

Invesco’s adjusted net income increased 8% sequentially and 65% year over year to $207.1 million.

Adjusted net revenue increased 4% sequentially and 32% year over year to $751.2 million. On a sequential basis, revenues improved primarily on increases in investment management fees earned. Also, foreign exchange rate changes aided net revenue growth by $5.4 million. However, net revenue missed the Zacks Consensus Estimate of $1.1 billion.

Adjusted investment management fees rose 4% sequentially and 29% year over year to $844.3 million. Service and distribution fees improved 4% sequentially and 48% year over year to $206.2 million.

Adjusted operating expenses increased 3% sequentially and 22% year over year to $466.4 million. On a sequential basis, employee compensation expenses increased 4% to $310.9 million primarily on a full quarter of the annual base salary hikes and share-based awards.

Also, the expenses for the quarter include a full quarter of the Hyderabad staff costs. Marketing expenses nudged up 2% from the prior quarter to $26.7 million.

Adjusted operating margin for the quarter was 37.9% compared with 37.6% in the prior quarter and 33.0% in the prior-year quarter.

Assets Under Management

Increased market value, as a result of the gradual recovery in global equity markets, improved assets under management (AUM) 2% sequentially and 17% year over year to $653.7 billion as of June 30, 2011. Average AUM for the reported quarter was $652.8 billion compared with $630.2 billion in the prior quarter and $480.5 billion in the prior-year quarter.

However, long-term net inflows were $3.8 billion compared with $6.6 billion in the prior quarter and $13.9 billion in the prior-year quarter. Institutional money market net inflows were $3.5 billion as against net inflows of $2.6 billion in the prior quarter and net outflows of $0.9 billion in the year-ago quarter.

Dividend Update

Concurrent with the earnings release, the company declared a second-quarter dividend of 12.25 cents per share. The dividend will be paid on September 8, 2011, to shareholders of record as of August 22, 2011.

Share Repurchase

During the reported quarter, Invesco repurchased 11.3 million shares at a weighted average price of $24.69.

Peer Performance

Last week, one of Invesco’s peers, BlackRock Inc. (BLK) reported second quarter 2011 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 strong top-line growth, owing to better investment performance and asset mix, partially offset by higher operating expenses.

Our Take

Improving long-term investment performance propelled by a gradual recovery in the global equity market is expected to boost operating results over the mid to long term. Though rising operating expenses will remain near-term headwinds, significant improvement in operating leverage from Invesco’s cost control initiatives is expected over the long term. The company is also poised to benefit from improved global investment flows owing to its broad diversification.

Invesco 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.

 
BLACKROCK INC (BLK): Free Stock Analysis Report
 
INVESCO LTD (IVZ): Free Stock Analysis Report
 
Zacks Investment Research