Invesco’s (IVZ) second quarter earnings came in at $0.11 per diluted share, substantially ahead of estimates. This compares with $0.08 per share in the prior quarter and $0.41 in the prior-year quarter.
Revenues were 11.8% higher and expenses were 4.0% higher than our projection. The downturn in global equity markets and the impact of less favorable foreign exchange rates were the main reasons for a 15.7% year-over-year decline in assets under management (AUM). However, on a sequential basis, AUM increased 11.6% as a result of increased market values, a favorable movement in foreign exchange rates, and net inflows in long-term and institutional money market funds.
Operating revenues increased 13.9% sequentially but decreased 33.2% year-over-year to $625.1 million. Operating revenue for the quarter included performance fees of $8.0 million, compared to $22.2 million in the prior-year quarter. Net revenue for the quarter increased 14.6% sequentially but decreased 33.4% year-over-year to $469.9 million.
Operating expenses increased 5.7% sequentially but decreased 26.0% year-over-year to $514.7 million. Net operating margin for the quarter was 25.1%, compared to 16.5% in the prior quarter and 35.2% in the prior-year quarter.
Net income came in at $75.7 million or $0.18 per diluted share, compared to $162.8 million or $0.41 per diluted share for the same period in 2008. Net income increased 146.6% sequentially but decreased 53.5% on a year-over-year basis.
AUM at Jun 30, 2009 was $388.7 billion, compared to $348.2 billion at the end of the prior quarter and $461.3 billion at the end of prior-year quarter. During the second quarter, average AUM was $376.5 billion, compared to $351.0 billion in the prior quarter and $482.6 billion in the prior-year quarter.
Long-term net inflows were $3.0 billion, compared to net inflows of $0.7 billion in the prior quarter and net outflows of $6.2 billion in the prior-year quarter. Money market net inflows were $1.7 billion, compared to $8.6 billion in the prior quarter and $4.7 billion in the prior-year quarter.
Invesco has taken a prudent approach to reduce its costs over the last few years and intends to continue its disciplined expense management, but not at the cost of the future growth of the organization.
We expect significant improvement in operating leverage from the expense reduction initiatives. Further, due to its broad diversification, the company should benefit from the improvement in global flows. As such, we maintain our Hold recommendation on the shares.