Invesco Earnings: Return to Outflows and Higher Costs Mar Results
There was little in narrow-moat Invesco’s IVZ second-quarter results that would alter our long-term view of the firm. We are leaving our $18 per share fair value estimate in place. We view the company’s shares as being close to fairly valued right now.
Invesco reported second-quarter earnings per share of $0.31 on an adjusted basis, short of the FactSet consensus of $0.40 and our own estimate of $0.37. The majority of the shortfall was driven by weaker fee income and higher compensation and distribution costs than we had been projecting (some of which was related to harder-to-forecast costs for executive retirements and organizational changes).
Invesco closed out the June quarter with $1.538 trillion in assets under management, or AUM, up 3.7% sequentially and 10.6% year over year. Net long-term outflows of $2.0 billion during the period (following a seasonally positive quarter of flows in the first quarter) resumed a stream of negative quarterly flows that started in the second quarter of 2022. Annualized organic long-term AUM growth of negative 0.6% during the June quarter was just outside our five-year forecast range calling for 0% to positive 3% average annual organic AUM growth.
While average long-term AUM was down 2.8% year over year, Invesco reported a 5.7% decline in second-quarter revenue when compared with the prior year’s period due to a decline in its realization rate, as well as a drop in other fees and revenue. Although the firm’s top line was down 9.5% during the first half of 2023, easier comparables in the back half of the year should allow the company to match our target for a low- to mid-single-digit decline in revenue this year.
As for profitability, Invesco’s adjusted operating margins of 29.0% during the first half were 760 basis points lower year over year but in line with our expectations. These results demonstrate the effects of negative operating leverage on the asset manager business model during poor and recovering markets.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.