Ameriprise Significantly Lags Ests

Ameriprise Financial Inc’s. (AMP - Analyst Report) second-quarter 2012 operating earnings of $1.13 per share, substantially lagged both the Zacks Consensus Estimate and the year-ago earnings of $1.33. Moreover, operating earnings totaled $254 million in the reported quarter, declining 23.7% from $333 million in the prior-year quarter.

Lower-than-expected results were primarily attributable to reduced top line, which was partly mitigated by lower operating expenses. Moreover, assets under management (AUM) and assets under administration (AUA) deteriorated marginally in the quarter. However, the ongoing capital deployment activities were impressive.

After taking into consideration net realized gains or losses, integration and restructuring charges, market impact on variable annuity guaranteed living benefits, amortization of deferred acquisition costs (DAC) and deferred sales inducement costs (DSIC) as well as income or loss from discontinued operations, Ameriprise’s net income from continuing operations came in at $224 million or 99 cents per share. This compares with net income of $319 million or $1.27 per share in the year-ago quarter.

Performance in Detail

On operating basis, Ameriprise’s net revenues for the quarter under review, fell 2.9% year over year to $2.52 billion. The decline was primarily due to reduced net investment income partly offset by increase in fee revenues aided by Ameriprise advisor client net inflows. Moreover, net revenue was below the Zacks Consensus Estimate of $2.56 billion.

Similarly, operating expenses came in at $2.12 billion, marginally dipping 0.7% from $2.13 billion in the year-ago quarter. The fall reflects lower benefits, claims, losses and settlement costs along with reduced interest and debt costs. These were partially offset by increases in amortization of deferred acquisition costs, general and administrative expenses and distribution costs.

Total AUM was $543.57 billion, down 3.5% sequentially and 2.9% on a year-over year basis. Total AUA came in at $111.17 billion, slipping 0.2% from the prior quarter, but slightly improving 0.6% from the year-ago period.

Dividend Update

Concurrent with the earnings release, Ameriprise announced quarterly cash dividend of 35 cents per share payable on August 17 to the shareholders of record as of August 3.

Share Repurchase Update

During the second quarter, Ameriprise bought back 7 million shares of its common stock for $350 million.

Peer Performance

BlackRock Inc.'s (BLK - Analyst Report) second-quarter 2012 adjusted earnings substantially beat the Zacks Consensus Estimate, mainly facilitated by lower operating expenses. However, declining top line and reduced assets under management were the primary headwinds.

Our Viewpoint

Ameriprise’s consistent capital deployment activities continue to boost the investors’ confidence in the stock. The company’s prudent expense management and robust balance sheet are also among the positives. Further, improvement in retail client activity is expected to fuel the operating leverage in the upcoming quarters. Moreover, with the completion of the integration of Columbia Management, the company anticipates to reap profits from the combined synergies.

However, the prevailing low interest rate environment and stringent regulatory landscape will keep Ameriprise’s financials slightly under strain in the near term.

Ameriprise currently retains a Zacks # 4 Rank, which translates into a short-term Sell rating.