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AllianceBernstein Earnings: Positive Flows and Market Gains Lift AB’s AUM and Operating Results

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Securities In This Article
AllianceBernstein Holding LP
(AB)

There was little in no-moat-rated AllianceBernstein’s AB fourth-quarter results that would alter our long-term view of the firm. We are leaving our $38 per share fair value estimate in place. We view the company’s shares as being only slightly undervalued right now.

AB reported decent first-quarter earnings per share of $0.66 on an adjusted basis, beating the FactSet consensus of $0.63 and our own estimate of $0.64. The majority of the outperformance was driven by higher performance fees and somewhat better cost controls than we had projected. The company closed out the March quarter with $675.9 billion in managed assets, up 4.6% sequentially but down 8.1% on a year-over-year basis. Exclusive of the $12.2 billion that came in during the third quarter of 2022 as part of the CarVal Investors acquisition, total AUM was down 9.7% year over year.

Net long-term inflows of $800 million were an improvement on the $5.0 billion in average quarterly outflows that AB reported in the last three quarter of 2022 but still well off the $2.8 billion quarterly run rate for inflows produced over the past eight calendar quarters. We continue to believe AB will produce annual organic assets under management growth within our projected negative 0.5% to positive 2.5% range during 2023-27.

While average AUM decreased 11.2% year over year during the first quarter, adjusted revenues declined 12.3% despite an improved realization rate and higher performance fees, as research and distribution fee income came in lower year over year. This was still slightly better than our expectations.

With operating expenses declining less than revenues year over year, adjusted operating margins (which excludes transaction, integration, restructuring, and other costs) of 27.0% during the March quarter were 450 basis points lower year over year but still slightly better than our expectations. These results, however, demonstrate the effects of negative operating leverage on the asset manager business model.

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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