Ameriprise Lags on Higher Expenses

Ameriprise Financial Inc.’s (AMP - Analyst Report) third quarter 2011 operating earnings of $1.04 per share significantly missed the Zacks Consensus Estimate of $1.22 and also compared unfavorably with the year-ago quarter’s earnings of $1.35 per share.

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 $271 million or $1.12 per share compared with $346 million or $1.33 per share in the comparable quarter last year.

Ameriprise’s third quarter results primarily benefited from increased asset-based fees and impressive results at Asset Management and Advice & Wealth Management segments. However, higher expenses and decrease in asset under management formed the downside.

Quarterly Details

On an operating basis, Ameriprise’s net revenues for the third quarter rose 8% year over year to $2.52 billion, reflecting substantial growth in management and distribution fees. However, net revenues stood below the Zacks Consensus Estimate of $2.59 billion.

GAAP expenses in the quarter climbed 17.0% year over year to $2.22 billion, while operating expenses escalated 20% from the year-ago quarter to $2.2 billion. These represent significant increase in distribution expenses and general and administrative expenses, partially offset by lower benefits, claims, losses and settlement costs.

Asset Position

Total assets under management and administration fell 4% year over year to $600 billion as of September 30, 2011, primarily due to decline in equity markets and Asset Management segment net outflows, partially mitigated by retail client net inflows.

Share Repurchase

During the third quarter, Ameriprise repurchased 9.9 million shares of its common stock for $447 million. Through September 30, 2011, the company repurchased $1.2 billion of shares and still has $1.7 billion available in its share repurchase authorization that expires in June 2013.

Peer Performance

One of Ameriprise’s competitors, BlackRock Inc. (BLK - Snapshot Report) reported third quarter adjusted earnings of $2.83 per share, fairly ahead of the Zacks Consensus Estimate of $2.74, primarily aided by an improved top line, which was offset partially by higher operating expenses.

Our Viewpoint

Though there is concern over the sluggish market recovery, improvement in retail client activity as well as decent growth in Advice & Wealth Management and Asset Management businesses would drive operating leverage in the upcoming quarters. 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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