Expenses Play Spoiler for Ameriprise

Ameriprise Financial Inc.’s ( AMP - Analyst Report ) 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 - Analyst Report ) 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.