AllianceBernstein Earnings: Return to Outflows and Higher Costs Mar Results
There was little in no-moat-rated AllianceBernstein’s AB second-quarter results that would alter our long-term view of the firm. We maintain our $36 per share fair value estimate. We view the firm’s shares as being slightly undervalued right now.
AllianceBernstein reported muted second-quarter EPS of $0.59 on an adjusted basis, falling short of the FactSet consensus of $0.66 and our own estimate of $0.64. The majority of the shortfall was driven by weaker research services revenue and higher compensation and general and administrative expenses than we were forecasting.
AllianceBernstein closed out June quarter with $691.5 billion in managed assets, up 2.3% sequentially and 6.9% on a year-over-year basis. Exclusive of the $12.2 billion that came in during the third quarter of 2022 as part of the CarVal Investors acquisition, total AUM was up just 5% year over year.
Net long-term outflows of $4.0 billion resumed a string of quarterly outflows that started during the second quarter of 2022, with positive flows of $800 million during the first quarter more reflective of the seasonality of flows in the industry. All has not been negative, though, as AllianceBernstein has produced a $2.2 billion quarterly run rate for inflows the past eight calendar quarters.
While average AUM decreased 1.5% year over year during second quarter, adjusted revenue declined 2.3% despite an improved realization rate. AllianceBernstein’s top line decline of 7.6% during the first half of the year was worse than our forecast for a low-single-digit decline during 2023, but the firm does face easier comparables in the back half of the year.
With operating expenses declining less than revenue, first-half adjusted operating margins (which excludes transaction, integration, restructuring, and other costs) of 27% were just 100 basis points lower year over year but still slightly better than our expectations. On a GAAP basis, AllianceBernstein’s operating margins declined 470 basis points to 19.1%.
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