Shares Gain On Lazard (LAZ) Q4 Earnings Beat, Revenues Down

Following Lazard Ltd.’s (NYSE:LAZ) reported positive earnings surprise of 21.7% in fourth-quarter 2017, shares inched up 1.42%. The company reported adjusted earnings of $1.12 per share, comfortably surpassing the Zacks Consensus Estimate of 92 cents. However, the reported figure came in a penny below the prior-year quarter.

Growth in assets under management (AUM) was a positive. However, rise in expenses and fall in revenues aided by lower financial advisory revenues were undermining factors.

Adjusted net income in the quarter came in at $148 million, down 1% year over year. Including tax charges related to the tax reform and other one-time items, on a GAAP basis, Lazard’s net loss came in at $84 million or 70 cents per share compared with net income of $128 million or 96 cents recorded in the prior-year quarter.

For 2017, adjusted net income was $501million or $3.78 per share compared with $410 million or $3.09 reported in the year-ago quarter. On a GAAP basis, net income came in at $254 million or $1.91 per share compared with $388 million or $2.92 recorded in the prior-year quarter.

Revenues Fall, Cost Pressure Persists

For 2017, adjusted operating revenues were $2.65 billion, up 13% year over year.

In the fourth quarter, adjusted operating revenues came in at $683 million, slightly down year over year. The fall was mainly attributed to lower financial advisory revenues, mostly offset by higher asset management revenues.

Adjusted operating expenses were around $493.5 million in the quarter, slightly up year over year. Higher non-compensation expenses were mostly offset by lower compensation and benefits.

Adjusted compensation and benefits expense declined 2.4% on a year-over-year basis to $366.9 million. Adjusted non-compensation expense for the quarter was $126.6 million, up 10% year over year.

The ratio of compensation expense to operating revenues was 53.8%, marginally down from 54.9% witnessed in the prior-year quarter. The ratio of non-compensation expense to operating revenues was 18.5% compared with 16.8% recorded in the year-ago quarter.

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 $335 million, down 17% from the year-earlier quarter. The decline was primarily due to decrease in revenues from strategic advisory and lower restructuring revenues.

Asset Management: The segment’s total revenues were $339 million, up 23% from the prior-year quarter. Higher management and incentive fees led to this rise.

Corporate: The segment generated total revenues of $8.6 million, which increased significantly from the prior-year quarter.

Strong AUM

As of Dec 31, 2017, AUM was recorded at $249.5 billion, up 26% year over year. The quarter experienced market and foreign exchange appreciation of $11.2 billion and net inflows of $137 million.

Average AUM came in at $243.8 billion, rising 22% year over year.

Stable Balance Sheet

Lazard’s cash and cash equivalents totaled $1.48 billion as of Dec 31, 2017, compared with $1.16 billion recorded as of Dec 31, 2016. The company’s stockholders’ equity was $1.26 billion compared with $1.29 billion as of Dec 31, 2016.

Steady Capital Deployment Activity

During 2017, Lazard returned $716 million to its shareholders. This included dividend payment of $341 million, share repurchase of $307 million and $68 million paid for meeting employee-tax obligations in exchange of share issuances upon vesting of equity grants.

Our Viewpoint

Results reflect an impressive quarter for Lazard. Though the company’s diverse footprint, steady capital-deployment activities and revenue strength position it favorably for the long run, macro headwinds, elevated costs pressure and stringent regulations put the company’s financials under strain.

Currently, Lazard carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

Ameriprise Financial Inc.’s (NYSE:AMP) fourth-quarter 2017 adjusted operating earnings per share of $3.26 comfortably surpassed the Zacks Consensus Estimate of $3.09. Also, the figure compares favorably with $2.73 per share registered in the year-ago quarter. Results benefited from an improvement in revenues. In addition, growth in AUM and assets under administration (AUA) were on the positive side. However, a rise in expenses acted as a headwind.

Legg Mason Inc. (NYSE:LM) reported third-quarter fiscal 2018 (ended Dec 31) reported adjusted net income of $1.02 per share, significantly up 59.4% year over year. Results exclude tax benefit of $213.7 million, or $2.27 per share, and certain one-time items. The Zacks Consensus Estimate was 84 cents. Top-line strength and steady AUM were the tailwinds. Nevertheless, rise in expenses remained a major drag.

Federated Investors, Inc. (NYSE:FII) posted a positive earnings surprise of around 3.4% for fourth-quarter 2017, keeping the earnings surprise streak alive of earnings beat. Results were chiefly backed by lower expenses, driven by reduced voluntary fee waivers. Also, AUM improved during the quarter. Yet, lower revenues were the undermining factor.

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