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Shares of Lazard Ltd. (LAZ - Free Report) were up 1.2% following its third-quarter 2016 earnings release. The company reported adjusted earnings of 85 cents per share, handily surpassing the Zacks Consensus Estimate of 75 cents. However, the reported figure compared unfavorably with 93 cents earned in the prior-year quarter.
Better-than-expected results were driven by higher revenues and improved assets under management (AUM). The company’s steady capital deployment activities supported by a strong balance sheet added to the positives. However, escalating operating expenses, both compensation and non-compensation was a major drag.
On a GAAP basis, net income came in at $113 million or 85 cents per share, compared with $400 million or $2.99 per share in the prior-year quarter.
Revenue Growth Offsets Higher Expenses
Adjusted operating revenues came in at $610.8 million, up 3% year over year. The rise can chiefly be attributed to an increase in corporate revenues and financial advisory revenues, along with a marginal increase in asset management revenues. Also, revenues outpaced the Zacks Consensus Estimate of $595 million.
Adjusted operating expenses were around $449.9 million in the quarter, up 3.9% year over year. Higher compensation and benefits expense and non-compensation expense led to the increase.
Adjusted compensation and benefits expense increased 4% year over year to $345.1 million. Adjusted non-compensation expense for the quarter was $104.8 million, up 2% year over year.
The ratio of compensation expense to operating revenue was 56.5% compared with 55.6% in the prior-year quarter. The ratio of non-compensation expense to operating revenue was 17.2%, in line with the prior-year quarter.
The company affirmed its annual targets of an adjusted non-compensation expense-to-revenue ratio between 16% and 20%, while the compensation-to-operating revenue ratio target is in the mid-to-high 50% range. Also, it expects its awarded compensation ratio for 2016 to be in line with the 2015 figure, given similar performance, hiring levels and compensation environment as 2015.
Segment Performance
Financial Advisory: The segment’s total revenue was $343.5 million, up 4% from the prior-year quarter. The rise was primarily due to a significant increase in restructuring revenues, partially offset by lower revenues from strategic advisory.
Asset Management: The segment’s total revenue was $265.1 million, up 1% from the prior-year quarter. Higher management and other fees led to the rise. However, the quarter witnessed a sharp decline in incentive fees.
Corporate: The segment generated total revenue of $2.2 million, up 20% from the prior-year quarter.
Increased AUM
As of Sep 30, 2016, AUM was recorded at $205.4 billion, up 12.5% year over year. The company recorded net inflows of $2.8 billion, compared with $201 million in the prior-year quarter. Also, the quarter experienced market and foreign exchange appreciation of $10.8 billion.
Average AUM came in at $201 billion, up 4.7% year over year.
Strong Balance Sheet
Lazard’s cash and cash equivalents were $853.9 million as of Sep 30, 2016, compared with $1.13 billion as of Dec 31, 2015. The company’s stockholders’ equity was $1.24 billion compared with $1.31 billion as of Dec 31, 2015.
Steady Capital Deployment Activity
During the quarter, Lazard returned $83 million to its shareholders. This included dividend payment of $47 million, share repurchase of $34 million and $2 million paid for meeting employee tax obligations in exchange of share issuances upon vesting of equity grants.
Our Viewpoint
The quarter was overall decent for Lazard. Consistent organic growth and cost-management initiatives, along with strong capital deployment activities are expected to be key drivers for the company in the long run. However, heavy dependence on financial advisory revenue can hurt top-line growth, as associated fees fall when deals fail to mature.
T. Rowe Price Group, Inc. (TROW - Free Report) reported negative earnings surprise of 2.5% for third-quarter 2016. Adjusted earnings per share of $1.17 missed the Zacks Consensus Estimate of $1.20. However, the bottom line improved 10% from the year-ago earnings of $1.06.
Janus Capital Group, Inc.’s reported adjusted earnings per share of 24 cents, beating the Zacks Consensus Estimate by a penny. Moreover, the bottom-line improved 9.1% from the prior-year quarter.
Ameriprise Financial Inc. (AMP - Free Report) reported operating earnings (excluding annual unlocking) per share of $2.29, missing the Zacks Consensus Estimate of $2.41. However, the figure represents a year-over-year increase of 4%.
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Lazard (LAZ) Stock Gains 1.2% on Q3 Earnings & Sales Beat
Shares of Lazard Ltd. (LAZ - Free Report) were up 1.2% following its third-quarter 2016 earnings release. The company reported adjusted earnings of 85 cents per share, handily surpassing the Zacks Consensus Estimate of 75 cents. However, the reported figure compared unfavorably with 93 cents earned in the prior-year quarter.
Better-than-expected results were driven by higher revenues and improved assets under management (AUM). The company’s steady capital deployment activities supported by a strong balance sheet added to the positives. However, escalating operating expenses, both compensation and non-compensation was a major drag.
On a GAAP basis, net income came in at $113 million or 85 cents per share, compared with $400 million or $2.99 per share in the prior-year quarter.
Revenue Growth Offsets Higher Expenses
Adjusted operating revenues came in at $610.8 million, up 3% year over year. The rise can chiefly be attributed to an increase in corporate revenues and financial advisory revenues, along with a marginal increase in asset management revenues. Also, revenues outpaced the Zacks Consensus Estimate of $595 million.
Adjusted operating expenses were around $449.9 million in the quarter, up 3.9% year over year. Higher compensation and benefits expense and non-compensation expense led to the increase.
Adjusted compensation and benefits expense increased 4% year over year to $345.1 million. Adjusted non-compensation expense for the quarter was $104.8 million, up 2% year over year.
The ratio of compensation expense to operating revenue was 56.5% compared with 55.6% in the prior-year quarter. The ratio of non-compensation expense to operating revenue was 17.2%, in line with the prior-year quarter.
The company affirmed its annual targets of an adjusted non-compensation expense-to-revenue ratio between 16% and 20%, while the compensation-to-operating revenue ratio target is in the mid-to-high 50% range. Also, it expects its awarded compensation ratio for 2016 to be in line with the 2015 figure, given similar performance, hiring levels and compensation environment as 2015.
Segment Performance
Financial Advisory: The segment’s total revenue was $343.5 million, up 4% from the prior-year quarter. The rise was primarily due to a significant increase in restructuring revenues, partially offset by lower revenues from strategic advisory.
Asset Management: The segment’s total revenue was $265.1 million, up 1% from the prior-year quarter. Higher management and other fees led to the rise. However, the quarter witnessed a sharp decline in incentive fees.
Corporate: The segment generated total revenue of $2.2 million, up 20% from the prior-year quarter.
Increased AUM
As of Sep 30, 2016, AUM was recorded at $205.4 billion, up 12.5% year over year. The company recorded net inflows of $2.8 billion, compared with $201 million in the prior-year quarter. Also, the quarter experienced market and foreign exchange appreciation of $10.8 billion.
Average AUM came in at $201 billion, up 4.7% year over year.
Strong Balance Sheet
Lazard’s cash and cash equivalents were $853.9 million as of Sep 30, 2016, compared with $1.13 billion as of Dec 31, 2015. The company’s stockholders’ equity was $1.24 billion compared with $1.31 billion as of Dec 31, 2015.
Steady Capital Deployment Activity
During the quarter, Lazard returned $83 million to its shareholders. This included dividend payment of $47 million, share repurchase of $34 million and $2 million paid for meeting employee tax obligations in exchange of share issuances upon vesting of equity grants.
Our Viewpoint
The quarter was overall decent for Lazard. Consistent organic growth and cost-management initiatives, along with strong capital deployment activities are expected to be key drivers for the company in the long run. However, heavy dependence on financial advisory revenue can hurt top-line growth, as associated fees fall when deals fail to mature.
LAZARD LTD Price, Consensus and EPS Surprise
LAZARD LTD Price, Consensus and EPS Surprise | LAZARD LTD Quote
Currently, Lazard carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Competitive Landscape
T. Rowe Price Group, Inc. (TROW - Free Report) reported negative earnings surprise of 2.5% for third-quarter 2016. Adjusted earnings per share of $1.17 missed the Zacks Consensus Estimate of $1.20. However, the bottom line improved 10% from the year-ago earnings of $1.06.
Janus Capital Group, Inc.’s reported adjusted earnings per share of 24 cents, beating the Zacks Consensus Estimate by a penny. Moreover, the bottom-line improved 9.1% from the prior-year quarter.
Ameriprise Financial Inc. (AMP - Free Report) reported operating earnings (excluding annual unlocking) per share of $2.29, missing the Zacks Consensus Estimate of $2.41. However, the figure represents a year-over-year increase of 4%.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>.