GAMCO Investors, Inc. :GBL-US: Earnings Analysis: Q1, 2017 By the Numbers : June 5, 2017

GAMCO Investors, Inc. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of GAMCO Investors, Inc. – Waddell & Reed Financial, Inc. Class A, Eaton Vance Corp., AllianceBernstein Holding L.P., BlackRock, Inc., Affiliated Managers Group, Inc., Franklin Resources, Inc., Invesco Ltd., Fortress Investment Group LLC Class A and Oaktree Capital Group, LLC Class A (WDR-US, EV-US, AB-US, BLK-US, AMG-US, BEN-US, IVZ-US, FIG-US and OAK-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 85.96 million, Net Earnings of USD 24.82 million.
  • Gross margins narrowed from 80.19% to 78.83% compared to the same period last year, operating (EBITDA) margins now 46.30% from 51.36%.
  • Year-on-year change in operating cash flow of 107.33% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 85.96 99.95 87.78 84.18 81.61
Revenue Growth (%YOY) 5.33 10.67 3.02 -21.11 -26.54
Earnings (mil) 24.82 32.69 30.86 27.54 26.03
Earnings Growth (%YOY) -4.63 82.38 106.17 14.28 5.04
Net Margin (%) 28.87 32.71 35.16 32.72 31.89
EPS 0.82 1.07 1.03 0.93 0.88
Return on Equity (%) N/A N/A N/A N/A N/A
Return on Assets (%) 59.85 96.69 104.98 95.87 94.66

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Market Share Versus Profits

Revenues History
Earnings History

GBL-US‘s change in revenue this period compared to the same period last year of 5.33% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that GBL-US is holding onto its market share. Also, for comparison purposes, revenues changed by -14% and earnings by -24.08% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 80.19% to 78.83%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 51.36% to 46.30% in this time frame. For comparison, gross margins were 76.51% and EBITDA margins were 49.27% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

GBL-US‘s change in operating cash flow of 107.33% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 51.17% to 46.13% and (2) one-time items that contributed to a decrease in pretax margins from 51.62% to 46.67%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

GAMCO Investors, Inc. is a holding company, which engages in the provision of investment advisory services. The firm’s investment services are primarily offered through its subsidiary GAMCO Asset Management, Inc., which manages separate accounts for high net worth individuals, institutions, and qualified pension plans, and through the company’s role as advisor to a family of mutual funds. It offers its services to open-end fund, closed-end fund, and private wealth management investors. The company was founded by Mario J. Gabelli in 1976 and is headquartered in Rye, NY.

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