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Lazard (LAZ) Q2 Earnings Beat on Lower Expenses, Shares Up

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Following the positive earnings surprise of 15.9% in second-quarter 2019, shares of Lazard (LAZ - Free Report) rallied 2.36%. The company reported adjusted earnings of 73 cents per share, comfortably surpassing the Zacks Consensus Estimate of 63 cents. However, the reported figure comes in lower than the prior-year quarter’s reported figure of $1.10.

Decline in expenses dsiplayed prudent cost management. Assets under management (AUM) remained stable. However, lower revenues were an undermining factor.

Adjusted net income in the reported quarter came in at $86 million, plunging 40% year over year. On a GAAP basis, Lazard’s net income came in at $66 million or 55 cents per share compared with $147 million or $1.13 recorded in the prior-year quarter.

Revenues Down, Costs Fall

In the second quarter, adjusted operating revenues came in at $630 million, down 15% year over year. This downside chiefly resulted from decrease in financial advisory and asset-management revenues.

Adjusted operating expenses were around $490.1 million in the quarter, down 7.8% year over year. Lower compensation and benefits, partly offset by higher non-compensation expenses resulted in the decline.

Adjusted compensation and benefits expense declined 12%, on a year-over-year basis, to $362.1 million. Adjusted non-compensation expense for the quarter came in at $128 million, up 8% year over year.

The ratio of compensation expense to operating revenues was 57.5%, up from the prior-year quarter’s 55.8%. The ratio of non-compensation expense to operating revenues was 20.3% compared with 16% reported in the year-ago 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 percentage range.

Segment Performance

Financial Advisory: The segment’s total revenues came in at record $328.8 million, down 21% from the year-earlier quarter. This decline primarily stemmed from decrease in revenues from M&A advisory and restructuring revenues.

Asset Management: The segment’s total revenues were $291.3 million, down 12% from the prior-year quarter. Higher management and other fees led to this upside.

Corporate: The segment generated total negative revenues of $9.6 million compared with negative revenues of $3.7 million in the comparable period last year.

Stable Assets Under Management (AUM)

As of Jun 30, 2019, AUM was recorded at $237 billion, in line with the prior-year quarter. The quarter witnessed market and foreign exchange appreciation of $7.7 billion and net outflows of $5.2 billion.

Average AUM came in at $237 billion, down 3% year over year.

Stable Balance Sheet

Lazard’s cash and cash equivalents totaled $919 million as of Jun 30, 2019, compared with $1.25 billion recorded as of Dec 31, 2018. The company’s stockholders’ equity was $717.9 million compared with $970.1 million as of Dec 31, 2018.

Steady Capital-Deployment Activity

During the April-June quarter, Lazard returned $217 million to its shareholders. This included dividend payment of $52 million, share repurchase of $160 million and $5 million paid for meeting employee-tax obligations in exchange of share issuances upon vesting of equity grants.

Our Viewpoint

Results reflect an impressive quarter for Lazard. Though the company’s diverse footprint, steady capital-deployment activities and controlled expenses position it favorably for the long haul, macro headwinds, top-line pressure and stringent regulations strain the company’s financials.
 

Lazard Ltd Price, Consensus and EPS Surprise

Lazard Ltd Price, Consensus and EPS Surprise

Lazard Ltd price-consensus-eps-surprise-chart | Lazard Ltd Quote

Currently, Lazard carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.    

Competitive Landscape

Blackstone (BX - Free Report) reported second-quarter distributable earnings of 57 cents, beating the Zacks Consensus Estimate of 50 cents. Moreover, the figure reflected improvement from 56 cents earned in the prior-year quarter. Results benefited from growth in AUM and lower expenses. However, a decline in revenues acted as a headwind.

T. Rowe Price Group, Inc. (TROW - Free Report) reported a positive earnings surprise of 6.3% in second-quarter 2019. Adjusted earnings per share came in at $2.03, outpacing the Zacks Consensus Estimate of $1.91. Results also improved 14.7% from the year-ago figure of $1.77. Results were driven by higher AUM and revenues. However, escalating expenses was an undermining factor.

BlackRock, Inc.’s (BLK - Free Report) second-quarter adjusted earnings of $6.41 per share lagged the Zacks Consensus Estimate of $6.52. Moreover, the figure was 3.8% lower than the year-ago quarter’s number. Results were hurt by a decline in revenues along with higher expenses. Nevertheless, growth in AUM supported results to some extent.

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