Eaton Vance's (EV) Q4 Earnings In Line, Stock Down 1.4%

Eaton (NYSE:ETN) Vance Corp.’s (NYSE:EV) fourth-quarter fiscal 2018 (ended Oct 31) adjusted earnings of 85 cents per share were in line with the Zacks Consensus Estimate. The bottom line was 21% higher than the prior-year level.

Higher revenues and growth in assets under management (AUM) on a year-over-year basis supported the results. However, rise in operating expenses was a headwind. Probably, this negative aspect coupled with a sequential fall in AUM was the reasons behind 1.4% decline in the company’s shares, following the earnings release.

Net income attributable to shareholders (GAAP basis) was $105.5 million or 87 cents per share, up from $82.1 million or 69 cents per share in the year-ago quarter.

Fiscal 2018 adjusted earnings of $3.21 per share surpassed the Zacks Consensus Estimate by a penny. Also, this compared favorably with $2.48 reported a year ago. Net income attributable to shareholders (GAAP basis) was $381.9 million or $3.11 per share, up from $282.1 million or $2.42 per share in fiscal 2017.

Revenues & Expenses Rise

Total revenues in the reported quarter were $436 million, up 7% year over year. This upside was primarily driven by higher management fees and other revenues. Also, the top line marginally beat the Zacks Consensus Estimate of $435 million.

Total revenues in fiscal 2018 were $1.7 billion, up 11% year over year. Also, the top line was in line with the Zacks Consensus Estimate.

Total expenses increased 9% from the prior-year quarter to $291.5 million, largely due to higher compensation and related costs, fund-related expenses, amortization of deferred sales commissions, as well as other expenses.

Total operating income grew 4% year over year to $144.5 million.

Liquidity Position Strong, AUM Improves

As of Oct 31, 2018, Eaton Vance had $600.7 million in cash and cash equivalents compared with $610.6 million on Oct 31, 2017. The company had no borrowings outstanding against its $300-million credit facility.

Eaton Vance’s consolidated AUM increased 4% year over year to $439.3 billion as of Oct 31, 2018, reflecting net inflows of $17.3 billion over the past year.

Share Repurchase

During fiscal 2018, Eaton Vance repurchased nearly 5.6 million shares of its Non-Voting Common Stock for $286.7 million, under the company’s existing repurchase authorization.

Our Viewpoint

Eaton Vance’s improving AUM along with revenue rise will likely support growth in the quarters ahead. However, escalating expenses remain a major headwind, as the same might hamper its bottom-line growth to quite an extent. Further, the company’s high debt level is likely to limit flexibility in terms of procuring additional finance for capital expenditures, acquisitions, debt service requirements or other purposes.

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

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Managers

BlackRock’s (NYSE:BLK) third-quarter 2018 adjusted earnings of $7.52 per share outpaced the Zacks Consensus Estimate of $6.93. The results benefited from an improvement in revenues, rise in AUM and steady long-term inflows. However, the uptick in operating expenses was a dampening factor.

The Blackstone Group L.P. (NYSE:BX) reported third-quarter 2018 economic net income of 76 cents per share, which surpassed the Zacks Consensus Estimate of 73 cents. The results benefited from an increase in revenues, which was supported by growth in AUM and inflows.

Invesco Ltd. (NYSE:IVZ) reported third-quarter 2018 adjusted earnings of 66 cents per share, lagging the Zacks Consensus Estimate by a penny. The results were primarily supported by marginal revenue growth and a rise in AUM. However, increase in operating expenses was an undermining factor.

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