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Invesco (IVZ) Q1 Earnings Beat Estimates, To Acquire Source

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Invesco Ltd. (IVZ - Free Report) reported first-quarter 2017 adjusted earnings of 61 cents per share, surpassing the Zacks Consensus Estimate of 56 cents. Also, the bottom line came in 24.5% higher than the prior-year quarter.

Better-than-expected results were primarily driven by an increase in revenues. Further, the company reported a rise in assets under management (AUM). However, an increase in operating expenses acted as a headwind.

On a GAAP basis, net income attributable to common shareholders came in at $212 million or 52 cents per share, up from $161 million or 38 cents per share a year ago.

Rise in Revenues More than Offsets Higher Costs

GAAP operating revenues for the quarter were $1.19 billion, up 3.8% year over year. However, the figure lagged the Zacks Consensus Estimate of $1.22 billion. Adjusted net revenue grew 6% year over year to $867.1 million.

Adjusted operating expenses were $540 million, up 5.7% from the prior-year quarter. The rise was due to an increase in all expense components except marketing expenses.

Adjusted operating margin for the quarter was 37.7% compared with 37.5% a year ago.

Strong AUM

As of Mar 31, 2017, AUM grew 8.2% year over year to $834.8 billion. Average AUM for the quarter totaled $829.8 billion, up 11% from the year-ago quarter. Further, the reported quarter witnessed long-term net inflows of $1.8 billion as against outflows of $1.3 billion in the prior-year quarter.

Dividend Hike

Also, Invesco declared a 3.6% hike in quarterly dividend to 29 cents per share. The dividend will be paid on Jun 2 to the shareholders on record as of May 12.

Deal to Acquire Source

Concurrently with the earnings release, Invesco announced a definitive agreement to acquire Europe-based Source, a leading, independent specialist provider of exchange-traded funds.  The transaction includes nearly $18 billion in Source-managed AUM and roughly $7 billion in externally managed AUM (as of Mar 31, 2017).

The transaction is in sync with Invesco’s strategic priorities to improve market share globally and in EMEA. The company plans to fund the deal with available liquidity. Notably, the deal, anticipated to close in third-quarter 2017, is subject to regulatory approvals.

Our View

Invesco remains well positioned to benefit from improved global investment flows, supported by a diversified footprint and product offering. The company is undertaking initiatives to transform key business support functions for boosting efficiency. However, high debt level and elevated expenses are anticipated to weigh on Invesco’s performance in the upcoming quarters.

Invesco PLC Price, Consensus and EPS Surprise

 

Invesco PLC Price, Consensus and EPS Surprise | Invesco PLC Quote

Currently, Invesco carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Asset Managers

Janus Capital Group, Inc.’s first-quarter 2017 adjusted earnings per share of 23 cents surpassed the Zacks Consensus Estimate of 21 cents. Better-than-expected results were driven by an increase in revenues. However, rise in operating expenses was a concern.

BlackRock, Inc. (BLK - Free Report) reported first-quarter 2017 adjusted earnings of $5.25 per share, which handily beat the Zacks Consensus Estimate of $4.94. The better-than-expected number was largely driven by an improvement in revenues, partially offset by an increase in expenses.

Ameriprise Financial Inc.’s (AMP - Free Report) first-quarter 2017 operating earnings per share of $2.70 comfortably surpassed the Zacks Consensus Estimate of $2.52. Results came in better than expected, primarily due to a rise in revenues. However, higher expenses hurt the results to some extent.

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