Janus Capital Group Inc. (JNS) reported second-quarter 2013 earnings per share attributable to common shareholders of 14 cents, lagging the Zacks Consensus Estimate by 2 cents. Moreover, results compared unfavorably with the prior-quarter earnings of 19 cents.
Decreased asset under management (:AUM), aided by net outflows was a headwind for the quarter. However, top-line growth and reduced operating expenses depict the stability in earnings.
Including one-time items, net income stood at $15.8 million or 8 cents per share compared with $28.0 million or 15 cents per share in the prior quarter.
Performance in Detail
Total revenue surged 0.7% sequentially to $215.8 million, primarily due to higher investment management fee revenues, partially offset by reduced private account performance fees. However, revenues were marginally below the Zacks Consensus Estimate of $218.0 million.
Total operating expenses decreased 1.3% sequentially to $157.4 million. The fall came on the back of reduced long-term incentive compensation and reduced general, administrative and occupancy expenses. Operating margin was 27.1% compared with 25.5% in the prior quarter.
As of Jun 31, 2013, Janus Capital reported AUM of $160.6 billion, down from $163.8 billion as of Mar 31, 2013. However, average AUM increased on a sequential basis to $164.2 billion from $161.8 billion.
The decrease in company-wide assets during second-quarter 2013 primarily reflects long-term net outflows of $5.4 billion, partially offset by net market appreciation of $2.2 billion. Fundamental equity and mathematical equity long-term net outflows totaled $4.3 billion and $1.2 billion, respectively, while fixed income long-term net inflows totaled $0.1 billion.
As of Jun 30, 2013, Janus Capital had stockholders’ equity of $1.5 billion, cash and investments of $759.9 million and outstanding debt of $549.4 million compared with stockholders’ equity of $1.5 billion, cash and investments of $719.7 million and outstanding debt of $547.6 million in the prior quarter.
Cash flow from operations during the reported quarter was $67.0 million compared with negative $13.3 million in the prior quarter. Notably, first-quarter 2013 results included the payment of annual incentive compensation.
During the quarter under review, Janus Capital entered into a privately negotiated deal in which it exchanged $116.6 million of newly issued 0.75% Convertible Senior Notes with $110 million worth of existing 3.25% Convertible Senior Notes. The former notes will mature in 2018 and the latter in 2014. Notably, the company recorded loss worth $12.6 million on extinguishment of debt due to the exchange in the quarter.
The aforementioned transaction facilitated in reducing the company’s annual interest expense, extending its present debt maturities as well as boosting its financial flexibility. The financial flexibility provided will enable the company to pay off its long-term debt obligations whenever a suitable opportunity arises in the future.
Capital Deployment Activity
During second-quarter 2013, Janus Capital repurchased 1.04 million shares of its common stock at an average price of $8.74 per share and a total cost of $9.1 million.
Janus Capital has the best-in-class investment boutique with the potential for AUM and revenue along with competitive leverage growth. However, weakness in flows remains a matter of concern.
Though fixed income segment and global operations are showing signs of improvement, the company’s equity-heavy portfolio makes it vulnerable to the equity market. Nevertheless, given its healthy balance sheet, we believe Janus Capital has the potential to perform well in the long run aided by a significant rebound in these markets.
Shares of Janus Capital currently carry a Zacks Rank #3 (Hold). Among other investment managers, Franklin Resources Inc. (BEN) is scheduled to report earnings for the quarter ended Jun 30, 2013 on Jul 29, while Waddell & Reed Financial, Inc. (WDR) will report on Jul 30 and Invesco Ltd. (IVZ) on Jul 31.
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