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AllianceBernstein Earnings: Return to Outflows and Higher Costs Mar Results

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There was little in no-moat-rated AllianceBernstein’s AB second-quarter results that would alter our long-term view of the firm. We maintain our $36 per share fair value estimate. We view the firm’s shares as being slightly undervalued right now.

AllianceBernstein reported muted second-quarter EPS of $0.59 on an adjusted basis, falling short of the FactSet consensus of $0.66 and our own estimate of $0.64. The majority of the shortfall was driven by weaker research services revenue and higher compensation and general and administrative expenses than we were forecasting.

AllianceBernstein closed out June quarter with $691.5 billion in managed assets, up 2.3% sequentially and 6.9% 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 up just 5% year over year.

Net long-term outflows of $4.0 billion resumed 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. All has not been negative, though, as AllianceBernstein has produced a $2.2 billion quarterly run rate for inflows the past eight calendar quarters.

While average AUM decreased 1.5% year over year during second quarter, adjusted revenue declined 2.3% despite an improved realization rate. AllianceBernstein’s top line decline of 7.6% during the first half of the year was worse than our forecast for a low-single-digit decline during 2023, but the firm does face easier comparables in the back half of the year.

With operating expenses declining less than revenue, first-half adjusted operating margins (which excludes transaction, integration, restructuring, and other costs) of 27% were just 100 basis points lower year over year but still slightly better than our expectations. On a GAAP basis, AllianceBernstein’s operating margins declined 470 basis points to 19.1%.

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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