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Lazard Shares Rally on Q3 Earnings Beat and Revenue Growth

Shares of Lazard Ltd.LAZ jumped 5.4% after the company reported yet another impressive quarter, with adjusted earnings of 93 cents per share outpacing the Zacks Consensus Estimate of 90 cents. With this, the company managed to keep its surprise streak for eighth straight quarters alive. Also, the reported figure compared favorably with 64 cents earned in the prior-year quarter.

Better-than-expected results were driven by improved top-line performance on the back of strong M&A advisory activities. While financial advisory revenues exhibited growth, asset management revenues witnessed a decline. Also, lower assets under management ("AUM") were on the downside. However, a fall in expenses acted as a tailwind.

Adjusted net income for the quarter came in at $124 million, up 40% year over year.

On a GAAP basis, including net benefit of $259 million from extinguishment of obligation and $18 million related to release of the valuation allowance on deferred tax assets, Lazard's net income came in at $399 million or $2.99 per share, compared with $89 million or 67 cents per share earned in the prior-year quarter.

Performance in Detail

In the third quarter, net revenue inched up 1.3% year over year to $573.5 million, but lagged the Zacks Consensus Estimate of $589.1 million.

Adjusted operating revenues came in at $594 million, marking the highest third-quarter revenues for the company, compared with $583.2 million recorded a year ago. The rise was driven by an increase in financial advisory revenues, partly offset by lower asset management revenues.

Adjusted operating expenses decreased 4.3% year over year to $432.9 million in the quarter. Lower compensation and benefits expenses as well as lower non-compensation expenses aided the fall.

Adjusted compensation and benefits expense fell 3.6% a year-over-year basis to $330.6 million. Adjusted non-compensation expense for the quarter was $102.3 million, down 6.5% year over year.

The ratio of compensation expense to operating revenues was 55.6% compared with 58.8% in the prior-year quarter. The ratio of non-compensation expense to operating revenues was 17.2% compared with 18.8% in the year-ago quarter.

The company affirmed its annual target of an adjusted non-compensation expense-to-revenue ratio within 16-20%, while the compensation-to-operating revenue ratio target lies in the mid-to-high 50 percentage range.

Segmental Performance

Financial Advisory : The segment's total revenue was $330.8 million, up 14% year over year. The rise was primarily attributable to an increase in revenues from strategic advisory, partly offset by lower restructuring revenues.

Asset Management : The segment's total revenue was $261.6 million, down 9% year over year. The decrease was mainly due to a fall in all fee income categories led by lower average AUM.

Corporate : The segment generated total revenue of $1.8 million, down from $4.1 million in the prior-year quarter.

Assets Under Management

As of Sep 30, 2015, AUM was recorded at $182.6 billion, down 10.1% year over year. The company recorded net inflows of $201 million. Further, the quarter experienced market and foreign exchange depreciation of $20.7 billion.

Average AUM came in at $192 billion, down 5.3% year over year.

Balance Sheet

Lazard's cash and cash equivalents totaled $860 million as of Sep 30, 2015, compared with $1.07 billion as of Dec 31, 2014. Stockholders' equity was $1.2 billion compared with $707 million as of Dec 31, 2014.

Capital Deployment

During third-quarter 2015, Lazard returned $88 million to its shareholders. This included dividend payment worth $44 million, share repurchase of $41 million and $3 million paid for meeting employee tax obligations in exchange for share issuances upon vesting of equity grants.

Our Viewpoint

Though results reflect a strong quarter for Lazard, macro headwinds and stringent regulations might exert pressure on the company's financials in the near term. Moreover, increased dependence on Financial Advisory revenues exposes the company to risks of downturn in the advisory services market. Besides, the company's asset management business currently faces cyclical and secular pressure, which limits its top-line growth.

Nonetheless, we believe the company's diverse footprint and cost-containment initiatives position it favorably for the long term.

Currently, Lazard carries a Zacks Rank #4 (Sell).

Among other investment managers, Waddell & Reed Financial, Inc. WDR , Invesco Ltd. IVZ and Legg Mason Inc. LM are scheduled to release results for the September-ending quarter on Oct 27, Oct 29 and Oct 30, respectively.

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INVESCO LTD (IVZ): Free Stock Analysis Report

WADDELL&REED -A (WDR): Free Stock Analysis Report

LEGG MASON INC (LM): Free Stock Analysis Report

LAZARD LTD (LAZ): 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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