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Invesco (IVZ) Misses on Q3 Earnings, to Buy OppenheimerFunds


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In an exceptional move, Invesco IVZ pre-poned its third-quarter 2018 earnings and also announced a definitive agreement with MassMutual Mutual Life Insurance Company to acquire latter's asset management affiliate, OppenheimerFunds, Inc.

Moreover, given the encouraging financial strength, the company initiated share-repurchase plan. All these developments cheered the company's investors, as Invesco's shares appreciated nearly 4.8% in the pre-market trading .

Invesco reported third-quarter 2018 adjusted earnings of 66 cents per share, lagging the Zacks Consensus Estimateby a penny. Also, the figure was 7% below the prior-year quarter level.

Results were primarily supported by slight GAAP revenue growth and a rise in assets under management (AUM). However, increase in operating expenses was an undermining factor.

On a GAAP basis, net income attributable to common shareholders came in at $269.6 million or 65 cents per share, compared with $267.5 million or 65 cents per share a year ago.

GAAP Revenues Improve, Expenses Rise

GAAP operating revenues for the quarter were $1.34 billion, up 0.3% year over year. The figure missed the Zacks Consensus Estimate of $1.39 billion. Adjusted net revenues decreased 1% year over year to $966.9 million.

Adjusted operating expenses were $609.1 million, up 6.1% from the prior-year quarter. The rise was due to an increase in all expense components, except employee compensation costs.

Adjusted operating margin for the quarter was 37% compared with 41.2% a year ago.

Strong AUM

As of Sep 30, 2018, AUM was $980.9 billion, up 6.9% year over year. Inclusion of 100% of Invesco Great Wall Fund Management Company added $9.5 billion in AUM during the reported quarter.

Average AUM for the thirdquarter totaled $985.1 billion, up 10.6% from the year-ago quarter. Further, the September quarter witnessed long-term net outflows of $11.2 billion.

Deal to Acquire OppenheimerFunds

Invesco announced a deal to acquire MassMutual's asset management affiliate OppenheimerFunds, Inc. The deal, expected to close in the second quarter of 2019, will significantly boost Invesco's AUM and will likely bring total AUM to more than $1.2 trillion.

The deal, still requiring regulatory and other third-party approvals, is expected to further enhance Invesco's ability to meet client needs through its comprehensive range of high-conviction active, passive and alternative capabilities. Notably, it is projected to be roughly 18% accretive to Invesco's earnings for three quarters in 2019 and 27% accretive to 2020 earnings.

Under the terms of the transaction, MassMutual and the OppenheimerFunds employee shareholders will get 81.9 million shares of Invesco common equity and $4 billion in perpetual, non-cumulative preferred shares with a 21-year non-call period and a fixed rate of 5.9%. This, in turn, will likely result in MassMutual owning nearly 15.5% stake in Invesco, becoming its largest shareholder.

Furthermore, Invesco and MassMutual will enter into a shareholder agreement, which will give MassMutual customary minority shareholder rights, including representation on Invesco's board of directors. MassMutual will nominate William F. Glavin, Jr., the current independent board member of OppenheimerFunds and its retired CEO. The shareholder agreement specifies a lock-up period of two years for the common stock.

Martin L. Flanagan, president and CEO of Invesco said, "This is a compelling, highly strategic and accretive transaction for Invesco that will help us achieve a number of objectives: enhance our leadership in the US and global markets, deliver the outcomes clients seek, broaden our relevance among top clients, deliver strong financial results and continue attracting the best talent in the industry."

Share Repurchase Update

Concurrent with the earnings release, Invesco announced a $1.2 billion worth of share buyback program that will be completed within the next two years.

Our View

Invesco remains well poised to benefit from improved global investment flows, supported by a diversified footprint and product offering. Also, its inorganic growth strategy will drive growth in the long run.

However, high-debt levels of the company might affect its profitability overthe long run. Mounting expenses will likely continue to hamper bottom-line growth to some extent.

Invesco Ltd. Price, Consensus and EPS Surprise

Invesco Ltd. Price, Consensus and EPS Surprise | Invesco Ltd. Quote

Currently, Invesco carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Performance of Other Investment Manager and Upcoming Releases

BlackRock's BLK third-quarter 2018 adjusted earnings of $7.52 per share outpaced the Zacks Consensus Estimate of $6.93. Results benefited from an improvement in revenues, rise in AUM and steady long-term inflows. However, increase in operating expenses acted as a headwind.

Among other investment managers, Ameriprise Financial AMP and SEI Investments Co. SEIC are slated to report results on Oct 23.

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Ameriprise Financial, Inc. (AMP): Free Stock Analysis Report

Invesco Ltd. (IVZ): Free Stock Analysis Report

SEI Investments Company (SEIC): Free Stock Analysis Report

BlackRock, Inc. (BLK): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: AMP , IVZ , SEIC , BLK



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