Ameriprise Lags Estimate - Analyst Blog

Ameriprise Financial Inc.'s (AMP) fourth quarter 2010 operating earnings of $1.21 per share missed the Zacks Consensus Estimate of $1.31 but surpassed the prior-year quarter's earnings of 91 cents per share. The hike was driven by impressive results in Asset Management and Advice & Wealth Management segments.

For the full-year 2010, Ameriprise reported operating earnings of $4.47 per share, which also missed the Zacks Consensus Estimate of $4.57 but was ahead of the previous year earnings of $3.08.

The year-over-year results primarily benefited from increased asset-based fees as a result of market appreciation, higher client activity and the company's focus on high-performance advisors. Also, the company significantly benefited from the Columbia Management acquisition. However, higher expenses were the downside.

Operating results exclude realized net investment gains/losses, non-recurring integration costs and impact of new accounting standards adopted in 2010.

GAAP net income for the reported quarter came in at $305 million or $1.18 per share compared with $237 million or 90 cents per share in the prior-year quarter. For the full-year, net income amounted to $1.12 billion or $4.28 per share versus $722 million or $2.95 per share in 2009.

Quarter in Detail

On an operating basis, Ameriprise's net revenues for the quarter rose 19% year over year to $2.63 billion. The improvement reflects growth in asset-based fees driven by the acquisition of Columbia Management, retail client net inflows and increased client activity levels. However, net revenues were lower than the Zacks Consensus Estimate of $2.72 billion.

For the full-year, Ameriprise's operating revenues came in at $9.58 billion, 24% ahead of $7.73 billion reported in 2009, but missed the Zacks Consensus Estimate of $9.97 billion.

GAAP expenses in the quarter climbed 19.3% year over year to $2.31 billion, and operating expenses escalated 16.7% from the year-ago quarter to $2.23 billion. These reflect a significant increase in distribution expenses along with benefits, claims, losses and settlement expenses.

Asset Position

Owned, managed and administered assets increased 47% year over year to $673 billion as of December 31, 2010. The increase followed from the acquisition of Columbia Management, retail client net inflows and market appreciation.

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 attributable to Ameriprise Financial was 17.7%. 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, was 16.2%.

Share Repurchase

During the quarter, Ameriprise repurchased 3.8 million shares of its common stock for $200 million.  For the full-year, the company repurchased 13.1 million shares of its common stock for $573 million.

Dividend Update

Concurrent with the earnings release, the board of Ameriprise declared a quarterly cash dividend of 18 cents per share. The dividend will be paid on February 25, 2011, to shareholders of record as on February 11, 2011.

Peer Performance

Last week Ameriprise's close competitor – BlackRock Inc. (BLK) had reported fourth quarter 2010 operating earnings of $3.42 per share, which were substantially ahead of the Zacks Consensus Estimate of $2.90, and were primarily aided by strong growth in top line, benefits of the BGI acquisition and improved equity markets, which were offset partially by higher operating expenses.

For the full-year, the company had reported operating earnings of $10.94 per share, beating the Zacks Consensus Estimate of $10.39.

Our Take

Though there is concern over sluggish market recovery, improvement in retail client activity and 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 #1 Rank, which translates into a short-term “Strong Buy” rating. Also, considering the fundamentals, we maintain our long-term “Outperform” recommendation on the stock.

 
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