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CBRE Posts Encouraging Q3 Earnings, Guides Up Again

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Real estate services firm, CBRE Group Inc. (CBG - Free Report) reported third-quarter 2014 adjusted earnings of 40 cents per share, 4 cents ahead of the Zacks Consensus Estimate and up 33.3% year over year. Results were driven by solid growth in revenues across all global regions.

 

 

On a GAAP basis, CBRE reported earnings of 32 cents per share, reflecting a 14% hike from 28 cents earned in the prior-year quarter.

Revenues came in at around $2,275 million, up 31.2% year over year and ahead of the Zacks Consensus Estimate of $2,079 million. Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) came in at $292.2 million, reflecting an increase of 30% from the prior-year quarter.

Considering business lines, property leasing revenue improved 15% while the company’s occupier outsourcing business – Global Corporate Services’ (GCS) revenue increased 61%.  Moreover, global property sales revenue climbed 33% during the quarter. Also, the company’s commercial mortgage services revenue experienced a 41% increase, on a year-over-year basis.

CBRE Group signed 26 outsourcing contracts during the third quarter of 2014. 

Quarter in Detail

Geographically, EMEA Region (primarily Europe) was a top performer with more-than double growth in revenue (95% in local currency), driven by contributions from the higher property sales and appraisal activities along with significannt growth in occupier outsourcing activities.

CBRE’s largest business segment – Americas Region – also registered double-digit revenue growth (20% year over year). Sound results were prompted by higher leasing, property sales as well as occupier outsourcing and commercial mortgage services activities.

Furthermore, helped by notable growth in Australia and Japan, the Asia Pacific Region reported 25% year-over-year growth in U.S. dollars (23% in local currency).

Revenue increased 27% year over year at Development Services (real estate development and investment activities primarily in the U.S.) while revenue at Global Investment Management (investment management operations in the U.S., Europe and Asia) dropped 17.5% year over year.

The company’s contractual revenue increased to 51% of its total revenue, from 48% in the year-ago period. This shift in its business mix toward greater contractual revenue remained the driver.

Liquidity

CBRE exited third-quarter 2014 with cash and cash equivalents of $615.4 million, up from $381.9 million at the end of second quarter 2014.

Outlook

Following a solid performance in the first nine months of 2014, CBRE Group again raised its adjusted earnings per share expectation by 5 cents. The company now expects full year earnings in the range of $1.65–$1.70, up from $1.60–$1.65 guided earlier. The Zacks Consensus Estimate of $1.65 per share also lies within this range.

Our Viewpoint

Encouraging earnings beat backed by improving leasing, property sales and outsourcing business remained the chief highlight of the third quarter. In addition, the full-year guidance increase boosted investors’ confidence. Despite reduced Global Investment Management revenues, we believe that the strategic investments in people and platform augur well for the company and would help it to enhance its market share.

Moreover, strategic buyouts have played a vital role in enhancing CBRE’s geographic coverage as well as broadening its service offerings. With market conditions continuing to improve, we believe that opportunistic acquisitions would serve as growth drivers, supplementing the company’s organic growth.

CBRE Group currently carries a Zacks Rank #3 (Hold). Investors interested in the real estate industry may consider stocks like Jones Lang LaSalle Incorporated (JLL - Free Report) , Kennedy-Wilson Holdings, Inc. (KW - Free Report) and Sun Hung Kai Properties Limited (SUHJY - Free Report) . All these stocks carry a Zacks Rank #1 (Strong Buy).



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