Net income declined to $158.7 million, or 35 cents a share, from $202.3 million, or 44 cents, a year earlier, Atlanta-based Invesco said today in a statement. Excluding certain items, earnings of 45 cents a share missed the 47 cents-a-share average estimate of 20 analysts in a Bloomberg survey. Shares fell by the most in eight months.
“Compensation expense came in significantly higher than anticipated,” Daniel Fannon, an analyst in San Francisco with Jefferies & Co., wrote in a research note published today.
Expenses rose 11 percent, outpacing the 9.6 percent revenue growth, as compensation costs increased and the company booked a one-time expense tied to the refinancing of debt. Chief Executive Officer Martin Flanagan has used acquisitions to broaden Invesco’s offerings beyond traditional stock and bond mutual funds since taking over in 2005.
Invesco declined 3.6 percent to close at $27.25 in New York, the most since June 1. The shares have risen 4.5 percent this year, compared with a 10 percent gain by Standard & Poor’s 20-company index for asset managers and custody banks.
“The compensation-to-revenue ratio will decline,” Chief Financial Officer Loren Starr said during a conference call with analysts, responding to several questions on the topic.
Costs tied to compensation rose 8.6 percent as employee pay included “additional bonus expense predominately linked to the quarter’s performance fee revenues and increases in operating income,” the company said in the statement.
Invesco drew a net $1 billion in investor deposits in the quarter, contributing to a 0.7 percent increase in assets to $687.7 billion. Sales of equity-focused products in January are running 50 percent higher than in the fourth quarter, Starr said today in an interview.
“January has been an extraordinary month in terms of flows coming back into a whole range of our products,” Starr said.
Client deposits in the fourth quarter included $1.8 billion to actively managed products. Clients withdrew $900 million from index-based products, driven by redemptions from the PowerShares QQQ Trust, the firm’s largest exchange-traded fund, according to Starr.
Invesco’s multi-asset products, which invest across stocks, bonds and commodities, grew 39 percent in 2012, led by deposits to its $12.2 billion Balanced Risk Allocation Fund. (ABRZX) That fund has grown more than threefold since the end of 2011.
Earnings included a $23.5 million cost tied to the redemption of bonds. Invesco issued $600 million in debt in November at 3.13 percent interest with repayment scheduled for 2022. The company used $531 million of the proceeds to redeem debt paying 5.4 percent due this year and next. The remainder would be used for general purposes, the company said at the time.
The company also booked about $20 million in costs related to outsourcing its European transfer agency and restructuring distribution in Europe. Net income in the fourth quarter of 2011 was boosted by $45 million from the settlement of a lawsuit connected to the 2007 departure of investment professionals to a competitor.
After excluding those and other items, profit rose 6.4 percent from a year earlier, the company said.
The company repurchased 3 million shares of its own stock at a cost of $75 million in the fourth quarter. It bought back $265 million in stock in 2012.
BlackRock Inc. (BLK), the world’s biggest money manager, said Jan. 17 that fourth-quarter net income rose 24 percent as clients deposited a net $47 billion, mostly to index-linked products, in the three months ended Dec. 31. T. Rowe Price Group Inc., based in Baltimore, said Jan. 29 that profit rose 23 percent even as clients pulled money for the first time in five quarters.
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