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Jones Lang Q2 Earnings Miss Estimates

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Jones Lang LaSalle Inc.’s (JLL - Analyst Report) second-quarter 2013 adjusted earnings of $1.15 per share substantially missed the Zacks Consensus Estimate of $1.41 per share. However, it came 2 cents above the year-ago quarter earnings of $1.13 per share.

Quarterly results benefited from decent growth in revenues but higher expenses acted as a dampener. Also, the company experienced leasing revenue declines in China, India and Australia.

Revenues for the reported quarter were $989.4 million, ahead of the Zacks Consensus Estimate of $959 million and up 7% year over year. Moreover, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $102 million, reflecting a year-over-year increase of 7%.

On a GAAP basis, Jones Lang reported net income of $46 million or $1.03 per share in the reported quarter, up from $37 million or 83 cents per share reported in the year-ago quarter.

Quarter in Detail

By segment, revenues from Jones Lang’s Real Estate Services increased 8% from the prior-year quarter to $928.1 million in the reported quarter. Revenues from LaSalle Investment Management segment moved up 5% year over year to $61.3 million. At quarter end, assets under management were $46.3 billion, compared with $47.7 billion as of the prior-quarter end. The dip was mainly due to foreign currency movements.

Geographically, operating revenues from the Americas region came in at $431.5 million, a year-over-year increase of 7%. Results were aided by increased transactional revenues, led by Capital Markets & Hotels, partially dwarfed by lower Latin America revenues.

Operating revenues in EMEA (Europe, Middle East, and Africa) increased 6% from the prior-year quarter to $268.1 million as Capital Markets & Hotels revenues moved up in the reported quarter. Geographically, growth was driven by UK and France.

In the Asia-Pacific region, operating revenues during the quarter increased 15% year over year to $228.5 million. The progress was driven by both transactional growth in Capital Markets & Hotels as well as annuity growth in Property & Facility Management lines. The positives were partly offset by leasing revenue declines in China, India and Australia.

Total operating expenses were nearly $923.6 million for the quarter, representing a year-over-year increase of about 7%. Excluding restructuring and acquisition charges, operating expenses were $836 million, up 8% year over year. The hike was mainly due to up-front costs of transitioning substantial new corporate outsourcing clients and variable compensation from a raise in Capital Markets revenue.

Balance Sheet Position

Jones Lang lowered its net debt by $37 million during the quarter to $833 million. The company exited the quarter with cash and cash equivalents of $121.9 million, down from $152.2 million at year-end 2012.

Our Viewpoint

With an investment grade balance sheet and a manageable debt position, Jones Lang is set to continue with its improving performance in the coming quarters. It is actively capitalizing on market consolidations. Leveraging its superior operating platform and market share expansion, the company achieved fivefold growth in its adjusted operating income over the last 10 years. The deal with HSBC Holdings plc. also augurs well.

However, with a relative decline in real estate fundamentals, the demand for Jones Lang’s services has fallen compared to the pre-recession levels, which is a cause of concern.

Jones Lang currently has a Zacks Rank #3 (Hold). A number of companies that are performing better and are worth a look in the same industry include CBRE Group, Inc. (CBG - Analyst Report) and E-House (China) Holdings Limited (EJ - Snapshot Report), both carrying a Zacks Rank #2 (Buy).
 

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