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Affiliated Managers Beats Q3 Earnings, Revs Lag

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Affiliated Managers Group Inc.’s (AMG - Free Report) third-quarter 2013 economic net income (ENI) came in at $2.19 per share, which beat the Zacks Consensus Estimate by a nickel. Moreover, this compared favorably with ENI of $1.91 recorded in the year-ago quarter.

Better-than-expected results were aided by top-line growth, partially offset by higher operating expenses. Further, continued improvement in asset under management (AUM) and a strong balance sheet were the tailwinds.

Affiliated Managers’ ENI came in at $121.8 million, rising 20.4% year over year.

Behind the Headlines

Affiliated Managers’ total revenue increased 18.0% year over year to $551.6 million. However, it lagged the Zacks Consensus Estimate of $554.0 million. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $170.4 million, rising 27.6% from $133.5 million in the prior quarter.

Total operating expenses increased 16.8% year over year to $382.5 million. Rise in all operating expense components except for depreciation and other amortization cost was the primarily reason for the increase.

Assets under Management

As of Sep 30, 2013, total AUM was $508.4 billion, reflecting net client cash flow of $10.1 billion. This compared favorably with $469.5 billion recorded in the prior quarter.

As of Sep 30, 2013, mutual fund AUM was $156.1 billion, up 9.3% sequentially. Moreover, institutional AUM came in at $267.5 billion, increasing 7.3% sequentially. Further, high net worth AUM were $65.2 billion, rising 10.0% from the prior quarter.

Capital and Liquidity

As of Sep 30, 2013, Affiliated Managers had $522.4 million in cash and cash equivalents compared with $413.8 million as of Jun 30, 2013. Moreover, the company had $575.0 million as senior bank debt at the quarter-end compared with $100.0 million as of Jun 30, 2013.

Furthermore, the company had shareholders’ equity of $2.0 billion compared with $2.2 billion as of Jun 30, 2013.

Performance of Other Asset Managers

Ameriprise Financial, Inc. (AMP - Free Report) and Invesco Ltd. (IVZ - Free Report) reported better-than-expected third-quarter earnings. Results for these two companies were driven by top-line growth, partially offset by higher operating expenses.

The Blackstone Group L.P.’s (BX - Free Report) third-quarter economic net income marginally missed the Zacks Consensus Estimate. Lower-than-expected results were due to a fall in the top line, partially offset by lower expenses.

Our Viewpoint

Affiliated Managers is expected to benefit from increased investments in the near term. Moreover, the growing need for risk management and alternative investment solutions within the financial service industry will likely be accretive to the company’s financials going forward.

However, a slow economic recovery, high debt levels in Affiliated Managers’ balance sheet and rising expenses are expected to keep the company’s financials under pressure.

Affiliated Managers currently carries a Zacks Rank #2 (Buy).

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