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Raymond James Lags on Earnings

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Raymond James Financial Inc.'s (RJF - Free Report) fiscal second-quarter 2013 (ended Mar 31) earnings per share came in at 68 cents, missing the Zacks Consensus Estimate of 75 cents. However, this compares favorably with the year-ago earnings of 64 cents.

Results were adversely affected by increased expenses, partially offset by top-line improvement. Growth in assets under management (AUM) and assets under administration were also among the positives.

GAAP net income for the reported quarter came in at $80.0 million or 56 cents per share, compared with $68.8 million or 52 cents per share in the prior-year quarter.

Behind the Headlines

Raymond James’ total revenue for the quarter came in at $1,170.1 million, surging 31.5% year over year. The elevation was largely driven by improvement in securities commissions and fees, investment advisory fees, interest income, account and service fees as well as other revenues, partially offset by a decline in investment banking and net trading profits. This surpassed the Zacks Consensus Estimate of $1,119.0 million by 4.6%.

Non-interest expenses increased 28.8% from the prior-year quarter to $983.8 million. The hike was primarily attributable to elevated compensation and benefits expenses, communications and information processing, occupancy and equipment costs, clearance and floor brokerage costs as well as business development expenses, acquisition related expenses along with investment sub-advisory fees and other expenses. Higher expenses were mitigated by lower bank loan loss provision.

As of Mar 31, 2013, assets under administration rose 39.0% year over year to $407.0 billion. Similarly, AUM totaled $51.0 billion, increasing 30.0% from the year-ago quarter.

Balance Sheet

As of Mar 31, 2013, Raymond James reported total assets of $22.7 billion, up 17.6% year over year. Shareholders’ equity came in at $3.5 billion, increasing 12.4% from $3.1 billion in the prior-year quarter. Book value per share at the end of the quarter was $25.14 compared with $22.84 at the end of the year-ago quarter.

Quarterly Results of Other Asset Managers

The Charles Schwab Corporation’s (SCHW - Free Report) first-quarter 2013 earnings marginally missed the Zacks Consensus Estimate by a penny. Lower-than-expected results were attributable to higher operating expenses and a rise in provision for loan losses, partially offset by top-line growth.

TD Ameritrade Holding Corporation’s (AMTD - Free Report) fiscal second-quarter 2013 (ended Mar 31, 2013) earnings marginally beat the Zacks Consensus Estimate. Better-than-expected results reflected a rise in revenues and decline in operating expenses.

However, Interactive Brokers Group, Inc.’s (IBKR - Free Report) first-quarter 2013 earnings missed the Zacks Consensus Estimate. The results lagged marginally owing to a fall in top line, partially offset by a decline in operating expenses.

Our Take

Raymond James’ strong balance sheet and its efforts to boost revenue by recruiting experienced advisors are expected to be accretive to its financials going forward. Alongside, the company’s strong capital position and capital deployment activities should make its stock attractive for yield-seeking investors.

On the other hand, regulatory issues, a low interest-rate environment, sluggish economic growth and continuously rising expenses are expected to hamper its top-line improvement.

Currently, Raymond James carries a Zacks Rank #3 (Hold).

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