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Lazard Beats on Earnings and Rev

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Lazard Ltd.’s (LAZ - Free Report) second-quarter 2013 adjusted earnings reached 45 cents per share, significantly outpacing the Zacks Consensus Estimate of 31 cents. Moreover, this compares favorably with the prior-quarter earnings of 28 cents.

Better-than-expected results reflect a strong top-line performance, primarily aided by elevated financial advisory revenues. Moreover, the company exhibited a strong capital position. However, decrease in assets under management (AUM) levels and a rise in expenses were the headwinds.

After considering certain non-recurring items, Lazard’s second-quarter 2013 net income came in at $31 million or 24 cents per share.

Behind the Headlines

In the reported quarter, Lazard’s operating revenues, on an adjusted basis, came in at $511.4 million, up 24% from the prior quarter. The rise was mainly attributable to increased financial advisory revenues coupled with elevated asset management fees. Moreover, total revenue outpaced the Zacks Consensus Estimate of $446.0 million.

Operating expenses increased 18.4% sequentially to $411.8 million, attributable to higher compensation and benefits expenses coupled with elevated non-compensation expenses.

Segment Performance

Financial Advisory: The segment’s total revenue stood at $263.3 million, up 56% from $168.5 million recorded in the prior quarter. The upsurge was primarily due to a rise in strategic advisory revenues, partially offset by reduced restructuring revenues.

Asset Management: The segment’s total revenue was $243.1 million, inching up 1.4% from $239.7 million reported in the prior quarter. The rise was mainly due to an increase in incentive fees, partially offset by a fall in management fees and other revenues.

Corporate: The segment generated total revenue of $5.0 million compared with $5.5 million in the prior quarter.

Assets Under Management

AUM was recorded at $163.3 billion as of Jun 30, 2013, down 5% sequentially. The sequential fall mainly reflects market depreciation and net outflows. Average AUM as of Jun 30, 2013 came in at $168 billion, down 2% sequentially.

Capital Position

Lazard boasts a healthy and low-risk financial position with roughly $601.5 million in cash and cash equivalents as of Jun 30, 2013 compared with $850.2 million as of Dec 31, 2012. Total stockholders’ equity was $592.2 million compared with $651.5 million as of Dec 31, 2012.

Capital Deployment

During second-quarter 2013, Lazard returned $54 million to shareholders. This includes share repurchases of Class A common stock worth $20 million, dividend payment worth $31 million along with $3 million paid for meeting employee tax obligations in exchange of share issuances upon vesting of equity grants.

Cost Saving Initiatives

In 2012, Lazard announced cost saving initiatives, which were expected to record about $125 million in annual savings from its existing cost base. The company has exceeded its target and now anticipates total annual savings of about $160 million, partially offset by investment in business. The firm expects more than two-thirds of these savings to be recognized in 2013, and the full impact in 2014 results.

Notably, in the quarter under review, related implementation expenses came in at about $38 million, up from $26 million in the prior-quarter. Total implementation expenses summed to about $167 million.

Our Viewpoint

The sluggish macroeconomic environment coupled with regulatory issues and net outflows will likely put Lazard’s profitability under pressure in the near term. However, we believe that the company’s diverse footprint and cost-curtailment initiatives will position it comfortably in the long run. Moreover, capital deployment efforts would further enhance investors’ confidence in the stock.

Shares of Lazard currently carry a Zacks Rank #3 (Hold). Among other investment managers, Franklin Resources Inc. (BEN - Free Report) is scheduled to report earnings for the June-end quarter on Jul 29. Waddell & Reed Financial, Inc. (WDR - Free Report) will report on Jul 30 and Invesco Ltd. (IVZ - Free Report) on Jul 31.

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