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Lazard Lags on Earnings and Rev

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Lazard Ltd.’s (LAZ - Free Report) first-quarter 2013 adjusted earnings reached 28 cents per share, lagging the Zacks Consensus Estimate of 35 cents. Moreover, this compares unfavorably with the prior quarter’s earnings of 61 cents.

Lower-than-expected results reflect a dismal top-line performance, primarily aided by reduced financial advisory revenues. However, elevated assets under management (AUM) levels and a strong capital position were the tailwinds. Moreover, a dip in expenses reflects the success of the company’s cost-saving initiatives.

After considering certain non-recurring items, Lazard’s first-quarter 2013 net income came in at $15.4 million or 12 cents per share.

Behind the Headlines

In the reported quarter, Lazard’s operating revenues, on an adjusted basis, came in at $414 million, down 28% from the prior quarter. The fall was mainly attributable to decreased financial advisory revenues coupled with a decline in revenues in the corporate segment and asset management fees. Moreover, total revenue missed the Zacks Consensus Estimate of $469.0 million.

Operating expenses decreased 24% sequentially to $348 million, attributable to lower compensation and benefits expenses coupled with reduced non-compensation expenses.

Segment Performance

Financial Advisory: The segment’s total revenue stood at $168 million, decreasing 46% from $309 million recorded in the prior quarter. The decrease was primarily due to a fall in strategic advisory revenues and lower restructuring revenues.

Asset Management: The segment’s total revenue was $240 million, inching down 2% from $245 million reported in the prior quarter. The reduction was mainly due to a fall in incentive fees, partially offset by a surge in management fees and other revenues.

Corporate: The segment generated total revenue of $6 million compared with $19 million in the prior quarter.

Assets Under Management

AUM was recorded at $172 billion as of Mar 31, 2013, up 3% sequentially. The sequential rise mainly reflects market appreciation, partially offset by net outflows. Moreover, AUM jumped 10% year over year. Average AUM as of Mar 31, 2013 came in at $171 billion compared with $156 billion as of Dec 31, 2012.

Capital Position

Lazard boasts a healthy and low-risk financial position with roughly $586 million in cash and cash equivalents as of Mar 31, 2013 compared with $850 million as of Dec 31, 2012. Total stockholders’ equity was $497 million compared with $570 million as of Dec 31, 2012.

Capital Deployment

During 1Q13, Lazard returned $176 million to shareholders. This includes share repurchases of Class A common stock worth $59 million along with $117 million paid for  meeting employee tax obligations in exchange of share issuances upon vesting of equity grants. Further, the repurchases were at an average price of $32.85 per share.

On Apr 25, 2013, Lazard’s board of directors voted for a 25% hike in the quarterly dividend on outstanding Class A common stock. The increased dividend stood at 25 cents per share, up from 20 cents. The new dividend will be paid on May 24, 2013, to stockholders of record on May 6, 2013.

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. Much of the cost saving initiatives has been completed. Moreover, two-thirds of the expense savings are anticipated to be realized in 2013, and full in 2014.

Notably, in the quarter under review, related implementation expenses came in at about $26 million, while in the prior quarter expenses stood at about $103 million. The total implementation expenses summed to about $129 million.

Our Viewpoint

The sluggish macroeconomic environment coupled with regulatory issues and a decline in top line 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, Invesco Ltd. (IVZ - Free Report) , Legg Mason Inc. (LM - Free Report) and Franklin Resources Inc. (BEN - Free Report) are scheduled to release March quarter-end earnings on Apr 30.

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