Ameriprise Financial Inc.’s (AMP) first quarter 2011 operating earnings of $1.35 per share beat the Zacks Consensus Estimate of $1.33. This also fared well against the prior-year quarter’s earnings of 85 cents per share.
Operating results exclude after-tax market impact on variable annuity guaranteed living benefits charge of $11 million, integration costs of 19 million, net realized gains of 1 million, and legal expenses of $77 million related to Securities America Inc. (SAI), an independent broker-dealer subsidiary of Ameriprise.
Net income attributed to Ameriprise for the reported quarter came in at $241 million or 94 cents per share compared with $214 million or 81 cents per share in the comparable quarter last year.
In April, SAI and its holding company, Securities America Financial Corporation (SA), entered into settlement deals related to the sale of private placement securities, which led to a $118 million pre-tax charge in the first quarter.
Furthermore, management has decided to spin off SA so that the company can focus on Ameriprise branded-advisor business. During the reported quarter, the company started reporting SA results in Corporate & Other segment and revised its Advice & Wealth Management financial results to reflect the change. Management expects to report SA results as discontinued operation beginning the second quarter.
The first quarter results primarily benefited from increased asset-based fees and impressive results in Asset Management as well as Advice & Wealth Management segments. Also, the Columbia Management acquisition proved to be a tailwind to the company. However, higher expenses formed the downside.
Quarterly Details
On an operating basis, Ameriprise’s net revenues for the quarter rose 22% year over year to $2.62 billion. The improvement reflects growth in asset-based fees driven by the acquisition of Columbia Management and retail client net inflows. However, net revenues stood substantially below the Zacks Consensus Estimate of $2.78 billion.
GAAP expenses in the quarter climbed 24.8% year over year to $2.38 billion, and operating expenses escalated 24.0% from the year-ago quarter to $2.28 billion. These reflect a significant increase in distribution expenses, general and administrative expenses along with benefits, claims, losses and settlement expenses.
Asset Position
Total assets under management and administration surged 50% year over year to $693 billion as of March 31, 2011. The acquisition of Columbia Management, retail client net inflows and market appreciation accounted for the whopping increase.
Capital
Ameriprise continues to maintain strong liquidity with nearly $1.5 billion in excess capital, which, we believe, will help it grow through acquisitions.
As of December 31, 2010, the debt-to-total capital ratio attributed to Ameriprise Financial was 17.9%. However, the debt-to-total-capital ratio, excluding non-recourse debt, the impact of consolidated investment entities and the 75% equity credit for hybrid securities, stood at 18.3%.
Share Repurchase
During the quarter, Ameriprise repurchased 6.5 million shares of its common stock for $395 million as per the $1.5 billion authorization announced by the company in May 2010. The company has $531 million shares remaining under its authorization.
Dividend Update
Concurrent with the earnings release, Ameriprise declared a quarterly cash dividend of 23 cents per share, up from 18 cents paid in the prior quarter. The dividend will be paid on May 20, 2011, to shareholders of record as of May 6, 2011.
Performance by Competitors
One of Ameriprise’s peers, BlackRock Inc. (BLK), reported first quarter 2011 operating earnings of $2.96 per share, exceeding the Zacks Consensus Estimate of $2.75. Better-than-expected results were primarily aided by strong top-line growth and improved equity markets, which were offset partially by higher operating expenses.
Also, another competitor, Blackstone Group (BX), reported first quarter 2011 economic net income (ENI) of 51 cents per share, outpacing the Zacks Consensus Estimate of 41 cents. It also outshined the prior-year quarter’s ENI of 32 cents. Results mainly benefited from strong revenue growth, improved equity markets and lower operating expenses.
Our Take
Though there is concern over sluggish market recovery, improvement in retail client activity as well as decent growth in Advice & Wealth Management and Asset Management businesses will drive operating leverage in the upcoming quarters. We also expect the acquisition of Columbia Management to provide far-reaching product distribution opportunities.
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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