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AllianceBernstein Earnings: Better Adjusted Near-Term Results Ignore Rising Headwinds

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While there was little in no-moat-rated AllianceBernstein’s AB third-quarter results that would alter our long-term view of the firm, we expect to lower our $34 per share fair value estimate around 5% to account for the impact that continued equity and credit market headwinds will have on results in both the near and long term.

AB reported better than expected third-quarter adjusted earnings per share of $0.65, better than the FactSet consensus estimate of $0.62 and our own estimate of $0.63. Most of the difference was driven by slightly higher revenue than we were forecasting, even as operating expenses were higher than our expectations for the period.

AB closed out the September quarter with $669.0 billion in managed assets, down 3.3% sequentially but up 9.2% on a year-over-year basis. Net long-term outflows of $1.9 billion continued a string of quarterly outflows that started during the second quarter of 2022, with positive flows of $800 million during the first quarter more reflective of the seasonality of flows in the industry.

While average AUM increased 5.5% year over year during the third quarter, adjusted revenues increased 3.6% because of slippage in AB’s realization rate. The company’s year-to-date top-line decline of 4.1% was within our forecasted 4%-7% drop in revenue for the full year, and we expect results to taper off some during the fourth quarter given the current equity and credit market headwinds.

As for profitability, adjusted GAAP operating margins of 28.0% during the first three quarters of 2023 were 220 basis points higher than 2022 levels and at the upper end of our range of expectations for AB to produce adjusted GAAP operating margins of 24%-28% this year.

GAAP operating margins declined 340 basis points year over year to 18.4% during the first three quarters of the year. Operating expenses have increased 4.0% year over year during 2023, primarily because of increased compensation costs (as well as higher contingent payments).

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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