UPDATE 4-AllianceBernstein net up 11 pct but outflows rise

Fri Jul 29, 2011 1:28pm EDT

* Net income per unit of 34 cents vs. 40 cents Street view

* June 30 assets at $461 bln vs. $477.3 bln at March 31

* Shares turn positive after 7.2 pct drop in morning (Adds analyst comment, updates shares)

By Ross Kerber

BOSTON, July 29 (Reuters) - Asset manager AllianceBernstein Holding LP (AB.N) posted an 11 percent profit gain but reported higher outflows, a nagging problem for the New York company.

Shares of AllianceBernstein were up 2 cents at $17.71 on Friday afternoon, recovering from a fall of 7.2 percent earlier in the session.

Volatile markets have kept investors out of the core equity products for which AllianceBernstein is best known. But mixed performance records have also been a problem.

Both trends were reflected in the company's total assets under management, against which it charges fees. Total assets were $461.0 billion as of June 30, down 3 percent from $477.3 billion at March 31. The decline resulted from outflows of $19.5 billion in the quarter, up from $14.4 billion in the first quarter.

The bulk of the withdrawals were by institutional investors, which took out $14.9 billion in the quarter. Retail investors and private clients also withdrew funds.

Chief Executive Peter Kraus, in the company's earnings press release, called the quarter "challenging" and acknowledged underperformance in large cap equity products.

Still, Kraus said the company remains committed to a stock-picking strategy that includes a focus on shares with undervalued earnings growth potential.

The company believes "that staying true to our core research beliefs is in our clients' best interest over time," Kraus said. Speaking on a conference call with analysts, Kraus mentioned other efforts to improve its outlook like adding new products in new geographies.

"Our strategy is working and we've made new progress," he said.

EARNINGS MISS

For its second quarter, AllianceBernstein reported net income of $35.7 million, or 34 cents per unit, compared with $32.3 million or 31 cents per unit in the same period a year earlier.

Analysts surveyed by Thomson Reuters I/B/E/S, on average, expected 40 cents per unit at the company, an affiliate of Axa SA (AXAF.PA).

AllianceBernstein Holding owns part of the operating partnership AllianceBernstein LP. For the operating partnership second-quarter net revenue was $728 million, up from $688 million a year earlier, while operating income was $116 million, up from $108 million a year ago.

In a research note to investors Citigroup analyst William Katz wrote the quarter was "Not as bad as it looks, but not good." Much of the earnings miss seemed tied to unusually high promotional expenses, but the outflows were worse than forecast, he wrote.

In another note CLSA analyst Chris Spahr also cited the lower revenue that AllianceBernstein reported from institutional research (which the company said was due to lower market volumes). "Given flow headwinds and increased market uncertainty in general, AB is a hard stock to like right now and today's results don't change that view," Spahr wrote. (Reporting by Ross Kerber; Editing by Gerald E. McCormick, Steve Orlofsky and Matthew Lewis)