MutualFundWire.com: Three Things to Know From Ameriprise's Earnings
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Tuesday, April 23, 2013

Three Things to Know From Ameriprise's Earnings


Columbia's [profile] parent saw its profits and revenues rise last quarter, slightly surpassing expectations.

Yesterday Ameriprise Financial reported first quarter net income from continuing operations of $336 million or $1.58 per diluted share, up from $245 million and $1.06 per diluted share in Q1 2012 and beating analysts' expectations of $1.57 per share.

On the asset management side, Ameriprise's pretax operating earnings climbed 10 percent to $144 million, despite net outflows of $5.7 billion, mostly in institutional business. Assets under management climbed to $466 billion.

Dow Jones, RTT News and Zacks all reported on Ameriprise's earnings. After the earnings were released, RBC Capital reiterated its outperform rating of Ameriprise's stock.

Ameriprise chairman and CEO Jim Cracchiolo and chief financial officer Walter Berman spoke with analysts this morning about the results [see Seeking Alpha's transcript of the earnings call]. For fundsters, here are the three key takeaways:

Point 1: Flows Will Get Better
Point 2: And Bad Flows Aren't Enough to Keep Them Down
Point 3: Cracchiolo Isn't Buying Another Columbia Any Time Soon

Now, to drill down on these points.

Point 1: Flows Will Get Better

On the earnings call, Cracchiolo offered some of the causes of the outflows, and he insisted that things will turn around.

"Looking ahead we expect flows to improve gradually this year," Cracchilo said.
Both Threadneedle and Columbia will experience outflows from assets that were directly or indirectly affiliated with the former parent companies, the majority being lower fee business. We'll leverage our platforms to build flows through third-party distribution in both the retail and the institutional channels. We're organizing the efforts of Columbia and Threadneedle to use the strengths of the investment teams to better compete in the global marketplace with high demand products such as emerging markets, asset allocation and global. We're always focused on generating consistently strong investment performance, building on the product portfolio of 118 4- and 5-star funds. In fact, Columbia won 5 new Lipper Awards in the quarter. Reengineering remains a priority to maintain good profitability and margins as our flows evolved.

And finally, we will make decisions to drive profitable net inflows. For example, we are executing our plan to align share classes to certain distribution channels. In the case of our RIA changes, it may impact flows in the near term in exchange for improved earnings.
Berman elaborated:
We recognized that U.S. retail flows remained a challenge. First, a large distribution partner continue to rebalance asset concentrations. Second, we had continued outflows from a third party subadvisor. As we mentioned last quarter, we're also taking actions to improve the profitability of flows by changing the share class that we are offering in the RIA channel. This resulted in outflows this quarter and we expect to see more over the next few quarters.

For institutional, outflows were high at $5.5 billion, though primarily from low fee assets. At Threadneedle, $2.2 billion of the outflows were largely from normal outflows from legacy insurance assets, and also included $1 billion from a mandate in Japan that we've previously disclosed.

For institutional at Columbia, there were approximately $1 billion of outflows from low basis point assets, including Balboa.

In addition, several clients took money off the table in both investment grade and high-yield credit mandates, given strong performance in these asset classes.

Point 2: And Bad Flows Aren't Enough to Keep Them Down

Despite net outflows of $5.7 billion for the quarter, the asset management unit's earnings are still on the rise, up 10 percent over the year. Berman explained:
We had solid earnings of $144 million, up 10% over last year. We're able to deliver earnings growth, despite being in outflows, by reengineering our revenue and expense bases.
Point 3: Cracchiolo Isn't Buying Another Columbia Any Time Soon

Fundsters and dealmakers wishing that Ameriprise would get back into the acquisition game may be disappointed, at least if they're expecting big deals. Cracchiolo all but dismissed such speculation:
We often look at acquisition opportunities and how they can complement our business. But at this point, we don't see any large properties in the marketplace that meet our acquisition criteria.
Analyst Alexander Blostein of Goldman Sachs followed up by asking if Ameriprise's $2 billion in excess capital might be used for deals. Cracchiolo stood firm:
Unless there's something that we feel isn't really appropriate for us that will further strategically add value and that we can get a good return for shareholders, our primary will be continuing to return to shareholders through buyback and dividend, as we've been doing.
To dig deeper into Ameriprise's results, read the full earnings call transcript on Seeking Alpha, link to earnings and transcript again, the earnings release or the earnings supplements.


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