Jefferies Group, Inc.
) reported its fiscal third-quarter 2012 (ended August 31) earnings
per share of 32 cents in line with the Zacks Consensus Estimate.
However, the earnings compared favorably with the prior-year
quarter's earnings of 10 cents.
Results were impacted by escalated non-interest expenses. Yet,
higher top-line growth was a positive for the quarter.
After considering certain items including a bargain purchase gain
on the Hoare Govett acquisition, a gain on debt extinguishment
related to trading activities in debt and impairment charges on
intangibles related to the Bache acquisition, Jeffries reported
third quarter net income of $70.2 million or 31 cents per share.
This compares favorably with the prior-year quarter's net income of
$68.3 million or 30 cents per share.
Performance in Detail
Net revenue climbed 45.1% year over year to $738.9 million, driven
by an increase in revenues from principal transactions as well as
higher asset management fees and investment income from managed
funds. This upside was partially offset by a fall in revenues from
commissions, investment banking and interest-related revenues.
Moreover, revenue reported also compared favorably with the Zacks
Consensus Estimate of $723.0 million.
Non-interest expenses jumped 29.8% year over year to $608.3 million
in the quarter. The rise was primarily due to increased
compensation and benefits expenses, partially offset by a decline
in non-compensation expenses.
As of August 31, 2012, total assets were $34.4 million, down 23.7%
from $45.1 million as of August 31, 2011. Average total assets were
$42.6 million, down 18.1% from $52.0 billion in the prior-year
As of August 31, 2012, cash and cash equivalents were $2.8 million,
up 41.2% from $2.0 million at the end of August 31, 2011,
indicating strong cash position of the company.
The adjusted leverage ratio dropped to 8.8% from 11.9% in the
prior-year quarter and 9.1% in the prior quarter.
Capital Deployment Update
Concurrent with the earnings release, the Board of Jeffries
declared a quarterly dividend of 7.5 cents per share. The dividend
will be paid on November 15, 2012 to shareholders of record as of
October 15, 2012.
We believe Jeffries has the potential for significant growth in the
long run, given its fairly liquid balance sheet. However,
persistent regulatory pressures, slow global economic growth and a
low-interest rate environment will keep Jeffries' earnings under
pressure in the upcoming quarters.
Currently, Jeffries' retains a Zacks #3 Rank, which translates into
a short-term Hold rating. However, one of its peers
Duff & Phelps Corporation
) retains a Zacks #2 Rank (a short-term Buy rating).
DUFF&PHELPS CP (DUF): Free Stock Analysis
JEFFERIES GP-NW (JEF): Free Stock Analysis
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