Lazard Beats Estimates, Expenses Up - Analyst Blog

Lazard Ltd. 's ( LAZ ) fourth-quarter 2012 adjusted earnings reached 61 cents per share, significantly beating the Zacks Consensus Estimate of 33 cents. Moreover, results compare favorably with the prior-year quarter's earnings of 1 cent.

Better-than-expected results reflect an increase in top line, elevated assets under management (AUM) levels and a strong capital position. Yet, increased expenses acted as a dampener.

After considering certain non-recurring items, Lazard's fourth-quarter 2012 net loss came in at $5 million or 5 cents per share.

For full year 2012, adjusted earnings reached $195 million or $1.44 per share compared with $179 million or $1.31 per share in the prior year. This also exceeds the Zacks Consensus Estimate of $1.16 per share. Including certain one-time items, net income was $84 million or 65 cents per share.

Behind the Headlines

In the reported quarter, Lazard's operating revenues, on adjusted basis, was $573.6 million, up 22% from the prior-year quarter. The upsurge was mainly attributable to increased financial advisory revenues coupled with a hike in revenues in the corporate segment and asset management fees. Moreover, total revenue surpassed the Zacks Consensus Estimate of $488.0 million.

For full year 2012, operating revenues, on an adjusted basis, were $1,971.8 million, up 5% year over year. The results also outpaced the Zacks Consensus Estimate of $1,845.0 million.

Operating expenses grew 2.5% year over year to $456.8 million, attributable to a rise in compensation and benefits expenses coupled with higher non-compensation expenses.

Segment Performance

Financial Advisory: The segment's total revenue stood at $309.3 million, increasing 19% from $260.5 million recorded in the year-ago quarter. The rise was primarily due to a surge in strategic advisory revenues, partially offset by lower restructuring revenues.

Asset Management: The segment's total revenue was $245.2 million, climbing 20% from $204.4 million reported in the year-ago quarter. The increase was primarily due to a rise in management fees, incentive fees and other revenue.

Corporate: The segment generated total revenue of $19.1 million compared with $3.8 million in the year-ago quarter.

Assets Under Management

AUM was recorded at $167 billion as of Dec 31, 2012, up 18% year over year. The year-over year rise mainly reflected market appreciation and net inflows. Moreover, AUM jumped 4% sequentially. Average AUM as of Dec 31, 2012 was $156 billion compared with $152 billion in 2011.

Capital Position

Lazard boasts a healthy and low-risk financial position with roughly $850.0 million in cash and cash equivalents as of Dec 31, 2012 compared with $832.9 million as of Sep 30, 2012. Total stockholders' equity was $570.0 million compared with $713.8 million as of Sep 30, 2012.

Capital Deployment

During 2012, Lazard repurchased shares worth $355 million at an average price of $27.66 per share. Notably, during the fourth quarter 2012, the company repurchased shares worth $132 million at an average price of $28.76 per share.

Further, the company paid $540 million to shareholders, including $140 million in dividends and $355 million in share repurchases.

Cost Saving Initiatives

In the prior quarter, Lazard announced cost saving initiatives, which were expected to record about $125 million in annual savings from its existing cost base.

Therefore, related implementation expenses of these initiatives are anticipated to range between $110 million - $130 million and be mainly compensation-related. The implementation of these initiatives is on track and in the fourth quarter of 2012, the company recorded $103 million as associated expenses, with the remainder projected to occur in the first half of 2013.

Peer Performance

Franklin Resources Inc. 's ( BEN ) fiscal first quarter 2013 (ended Dec 31) earnings reached $2.42 per share, beating the Zacks Consensus Estimate by 4 cents. Moreover, results outpaced earnings of $2.31 in the prior quarter. Better-than-expected results came on the back of higher revenues. Moreover, increased level of AUM was a tailwind for the quarter. Yet, higher operating expenses were a dampener.

Our Viewpoint

The sluggish macroeconomic environment coupled with regulatory issues and increasing expenses 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 #2 (Buy). Among peers, Virtus Investment Partners Inc. ( VRTS ) and Cohen & Steers Inc. ( CNS ) carry a Zacks Rank #1 (Strong Buy).

FRANKLIN RESOUR (BEN): Free Stock Analysis Report

COHEN&STRS INC (CNS): Free Stock Analysis Report

LAZARD LTD (LAZ): Free Stock Analysis Report

VIRTUS INVESTMT (VRTS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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