Lazard (LAZ) Q4 Earnings Beat On Higher Revenues, Costs Up

Lazard (NYSE:LAZ) reported fourth-quarter 2019 adjusted earnings of 91 cents per share, comfortably surpassing the Zacks Consensus Estimate of 75 cents. However, the reported figure comes in lower than the prior-year quarter’s reported figure of 94 cents.

Higher revenues and strong assets under management (AUM) drove the results. However, escalating costs were an undermining factor.

Adjusted net income in the reported quarter came in at $105 million, dropping 11% year over year. On a GAAP basis, Lazard’s net income came in at $77 million or 67 cents per share compared with the $113 million or 89 cents recorded in the prior-year quarter.

For 2019, adjusted net income was $385 million or $3.28 per share compared with the $539 million or $4.16 per share reported in the previous year. On a GAAP basis, net income came in at $287 million or $2.44 per share compared with the $527 million or $4.06 per share recorded in the prior year.

Revenues Up, Costs Escalate

In the fourth quarter, adjusted operating revenues came in at $708 million, up 3% year over year. This upsurge chiefly resulted from increase in asset-management and corporate revenues, partly offset by lower financial advisory revenues.

For 2019, adjusted operating revenues were $2.55 billion, down 8% year over year.

Adjusted operating expenses were around $536.7 million in the quarter, up 6.6% year over year. Higher compensation and benefits, partly offset by lower non-compensation expenses, resulted in this upswing.

Adjusted compensation and benefits expense climbed 13%, on a year-over-year basis, to $407.1 million. Adjusted non-compensation expense for the quarter came in at $129.6 million, down 9% year over year.

The ratio of compensation expense to operating revenues was 57.5%, up from the year-earlier quarter’s 52.8%. The ratio of non-compensation expense to operating revenues was 18.3% compared with the year-ago quarter’s 20.8%.

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

Segment Performance

Financial Advisory: The segment’s total revenues came in at a record $394.7 million, down 1% from the year-earlier quarter.

Asset Management: The segment’s total revenues were $301 million, up 7% from the prior-year quarter. Higher management and other fees led to this upside.

Corporate: The segment generated revenues of $12.3 million compared with the $5.2 million recorded in the year-ago period.

Steady Assets Under Management

As of Dec 31, 2019, AUM was recorded at $248.2 billion, up 15.6% from the prior-year quarter. The quarter witnessed market and foreign exchange appreciation of $16.8 billion and net inflows of $519 million.

Average AUM came in at $238.2 billion, up 6% year over year.

Stable Balance Sheet

Lazard’s cash and cash equivalents totaled $1.23 billion as of Dec 31, 2019, compared with $1.25 billion recorded as of Dec 31, 2018. The company’s stockholders’ equity was $681.6 million compared with $970.1 million as of Dec 31, 2018.

Steady Capital-Deployment Activity

During 2019, Lazard returned $850 million to its shareholders. This included dividend payment of $255 million, share repurchase of $495 million and $100 million paid for meeting employee-tax obligations in exchange of share issuances upon vesting of equity grants.

Notably, during the October-December period, the company repurchased 1.7 million shares at an average cost of $37.28 per share.

Our Viewpoint

Results reflect Lazard’s impressive performance in the December-end quarter. Though macro headwinds, escalating expenses and stringent regulations strain the company’s financials to some extent, diverse footprint, steady capital-deployment activities and top-line strength position Lazard favorably for the long haul.

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

Competitive Landscape

BlackRock, Inc.’s (NYSE:BLK) fourth-quarter 2019 adjusted earnings of $8.34 per share surpassed the Zacks Consensus Estimate of $7.67. Moreover, the figure came in 37.2% higher than the year-ago quarter’s number. Results benefited from an improvement in revenues. Moreover, growth in AUM, driven by net inflows, was a positive. However, higher expenses hurt results to some extent.

Cohen & Steers’ (NYSE:CNS) fourth-quarter adjusted earnings of 74 cents per share surpassed the Zacks Consensus Estimate of 67 cents. Also, the bottom line came in 32.1% higher than the year-ago quarter figure. Results benefited from an improvement in AUM and higher revenues. However, rise in expenses was a headwind.

T. Rowe Price Group, Inc. (NASDAQ:TROW) reported a positive earnings surprise of 4.1% in the October-December quarter. Adjusted earnings per share came in at $2.03, outpacing the Zacks Consensus Estimate of $1.95. The reported figure also improved 31.8% from the year-ago figure of $1.54.

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