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Jones Lang Earnings and Revs Beat

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Aided by solid growth in revenues, Jones Lang LaSalle Inc.’s (JLL - Analyst Report) third-quarter 2013 adjusted earnings per share came in at $1.49, substantially ahead of the Zacks Consensus Estimate of $1.35 per share. It also came 21% above the year-ago quarter earnings of $1.23 per share.

Quarterly results benefited from decent growth in fee revenues, driven by Capital Markets & Hotels and Property & Facility Management as well as strong performance in leasing.

Revenues for the reported quarter were $1.1 billion, well ahead of the Zacks Consensus Estimate of $980 million and up 17% year over year. Moreover, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $118 million, reflecting a year-over-year increase of 16%.

On a GAAP basis, Jones Lang reported net income of $63 million or $1.39 per share in the reported quarter, up from $50 million or $1.10 per share reported in the year-ago quarter.

Quarter in Detail

By segment, revenues from Jones Lang’s Real Estate Services increased 20% from the prior-year quarter to over $1.0 billion in the reported quarter. On the other hand, revenues from LaSalle Investment Management segment moved down 4% year over year to $67.3 million.

At quarter end, assets under management were $46.7 billion, compared with $46.3 billion as of the prior-quarter end. Results reflected $2.1 billion worth of acquisitions and valuation increases, partially dwarfed by $1.7 billion of dispositions and foreign currency movements.

Geographically, operating revenues from the Americas region came in at $484.1 million, a year-over-year increase of 13%. Results were supported by increased Capital Markets & Hotels revenue and Property & Facility Management fee revenue growth, regardless of the continued slowdown in Brazil.

Operating revenues in EMEA (Europe, Middle East and Africa) increased 30% from the prior-year quarter to $318.4 million as Capital Markets & Hotels revenues moved up in the reported quarter. Geographically, growth was driven by UK, France, the Netherlands and Southern Europe.

In the Asia-Pacific region, operating revenues during the quarter increased 24% year over year to $237.0 million. This was due to a notable rise in Capital Markets & Hotels revenue driven by Australia, Japan and Hong Kong, as well as a fee revenue increase in Property & Facility Management.

Total operating expenses were around $1.0 billion for the quarter, representing a year-over-year increase of about 15%. Excluding restructuring and acquisition charges, consolidated fee-based operating expenses were $897 million, up 13% year over year.

Adjusted operating income margin (on a fee revenue basis) came in at 9.4% for the quarter, compared with 8.3% in the prior year.

Liquidity

Jones Lang lowered its net debt by $68 million sequentially to $765 million. The company exited the quarter with cash and cash equivalents of $119.7 million, down from $121.9 million at the end of the prior quarter and $152.2 million at year-end 2012.

Notably, in early October, Jones Lang renewed its long-term credit facility. In particular, the credit facility has been elevated to $1.2 billion from $1.1 billion and the maturity has been pushed further to Oct 2018 from Jun 2016. Moreover, the pricing for the facility resulted in a 0.375% decline from the prior pricing.

Dividend Update

A semi-annual dividend of 22 cents per share was also declared by the company’s board of directors. It will be paid on Dec 13, 2013, to investors of record as of the close of business on Nov 15.

Our Viewpoint

We are encouraged with the better-than-expected earnings at Jones Lang. However, we note that though the economic conditions are improving, transaction volumes are yet to reach the pre-recession peak levels. Also, the cautious attitude of investors is limiting demand for opportunistic or speculative products. Structural and political issues have reduced the pace of the robust development in certain Asian economies and the slowdown in Brazil continues.

Moreover, a healthy level of confidence is yet to return to the European market. Along with this, the cut-throat competitive environment and exposure to unfavorable foreign currency movements remain plausible concerns.

Jones Lang currently has a Zacks Rank #5 (Strong Sell). A number of companies that are performing better and are worth a look in the same industry include E-House (China) Holdings Ltd (EJ - Snapshot Report) with a Zacks Rank #1 (Strong Buy), Standard Parking Corp. with Zacks Rank #2 (Buy) and CBRE Group Inc. (CBG - Analyst Report) carrying a Zacks Rank #3 (Hold).

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