A month has gone by since the last earnings report for Lazard Ltd (LAZ - Free Report) . Shares have lost about 17.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lazard Ltd due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lazard’s Q1 Earnings Beat on Low Costs
Lazard delivered a positive earnings surprise of 50% in first-quarter 2019. The company reported adjusted earnings of 87 cents per share, comfortably surpassing the Zacks Consensus Estimate of 58 cents. However, the reported figure comes in lower than the prior-year figure of $1.26.
Results benefited from lower expenses. However, lower revenues and declining AUM were the undermining factors.
Adjusted net income in the first quarter came in at $106 million, down 36% year over year. On a GAAP basis, Lazard’s net income came in at $97 million or 80 cents per share compared with $160 million or $1.21 recorded in the prior-year quarter.
Revenues Decline, Costs Down
In the first quarter, adjusted operating revenues came in at $620 million, down 14.4% year over year. This downside resulted from the decrease in financial advisory revenues and asset-management revenues, partly offset by higher corporate revenues.
Adjusted operating expenses were around $472.2 million in the quarter, down 8.8% year over year. Lower adjusted compensation and benefits expenses resulted in this fall. These decreases were partly offset by higher non-compensation expense.
Adjusted compensation and benefits expense moved down 12%, on a year-over-year basis, to $356.5 million. Adjusted non-compensation expense for the quarter came in at $115.7 million, up 1% year over year.
The ratio of compensation expense to operating revenues was 57.5%, up from 55.8% witnessed in the prior-year quarter. The ratio of non-compensation expense to operating revenues was 18.7% compared with 15.8% reported in the year-ago quarter.
Quarterly Segment Performance
Financial Advisory:The segment’s total revenues came in at $330 million, down 15% from the year-earlier quarter. This decline resulted from lower operating revenues in Europe and Asia, offset by higher revenues in America.
Asset Management:The segment’s total revenues came in at $284 million, down 14% from the prior-year quarter. Lower management and other fees led to this decline.
Corporate:The segment generated total revenues of $6.3 million compared with revenues of $5.2 million recorded in the comparable period last year.
Assets Under Management (AUM)
As of Mar 31, 2019, AUM was recorded at $235 billion, down 6.6% year over year. The quarter witnessed market and foreign exchange appreciation of $20.2 billion and net inflows of $38 million.
Average AUM came in at $228.8 billion, down 10.5% year over year.
Stable Balance Sheet
Lazard’s cash and cash equivalents totaled $1.01 billion as of Mar 31, 2019, compared with $1.25 billion recorded as of Dec 31, 2018. The company’s stockholders’ equity was $771.4 million compared with $970.1 million as of Dec 31, 2018.
Steady Capital-Deployment Activity
During first-quarter 2019, Lazard returned $386 million to its shareholders. This included dividend payment of $103 million, share repurchase of $192 million and $91 million paid for meeting employee-tax obligations in exchange of share issuances upon vesting of equity grants.
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-percentage range.
Management expects Financial Advisory in the second quarter to continue to have challenging comparisons to prior-year quarter’s record revenue levels. Further, the second half of the year is likely to be stronger than the first half.
While non-compensation ratio is currently at the lower end of the target range over the cycle, quarterly variability in non-comp expenses is expected as the company continues to ramp up investments for growth.
The tax reforms provide a significant benefit to the tax rate under the current business structure. Management estimates that with no change to structure, steady-state annual tax rate will contract by approximately 200-300 bps, resulting in a future effective tax rate in the mid-20s in 2019 with cash taxes expected to be in the mid-to-high teens before discrete items.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.