Aided by higher revenues, Janus Capital Group Inc. (JNS) reported second-quarter 2014 earnings per share attributable to common shareholders of 19 cents, inching past the Zacks Consensus Estimate by a penny. Moreover, results compared favorably with the prior-year quarter adjusted earnings of 12 cents.
Better-than-expected results reflected top-line growth and increased asset under management (AUM.TO), depicting stability in earnings. However, net outflows and a rise in operating expenses were headwinds for the quarter.
Net income stood at $36.3 million compared with $15.8 million in the prior-year quarter. Notably, prior-year quarter results included charges related to early extinguishment of debt.
Performance in Detail
Total revenue increased 7.1% year over year to $231.2 million, primarily due to higher investment management fee revenues and shareowner servicing fees and other, partially offset by negative performance fees. However, revenues were below the Zacks Consensus Estimate of $234.0 million.
Total operating expenses increased 2% on a year-over-year basis to $160.5 million in the second quarter. The increase came on the back of higher employee compensation and benefits and distribution expenses. These were partly offset by lower depreciation and amortization along with reduced long-term incentive compensation.
As of Jun 30, 2014, Janus Capital reported AUM of $177.7 billion, up from $160.6 billion as of Jun 30, 2013 and $174.1 billion as of Mar 31, 2014. Moreover, average AUM increased to $174.4 billion from $164.2 billion in the prior-year quarter and $173.0 billion in the previous quarter.
The increase in company-wide assets during second-quarter 2014 primarily reflects net market appreciation of $6.9 billion, partially offset by long-term net outflows of $3.3 billion. Fundamental and mathematical equity long-term net outflows summed to $3.0 billion and $0.6 billion, while fixed income long-term net inflows totaled $0.3 billion during the quarter.
As of Jun 30, 2014, Janus Capital had stockholders’ equity of $1.5 billion, cash and investments of $756.5 million and outstanding debt of $509.0 million compared with stockholders’ equity of $1.5 billion, cash and investments of $768.6 million and outstanding debt of $546.2 million in the prior quarter.
Cash flow from operations during the reported quarter was $65.9 million compared with $67 million in the prior-year quarter.
Capital Deployment Activity
During second-quarter 2014, Janus Capital repurchased 2.15 million shares of its common stock at an average price of $11.81 per share and a total cost of $25.4 million.
Janus Capital has the best-in-class investment boutique with potential for AUM and revenue along with competitive leverage growth. Capital deployment activities of the company are also commendable. However, weakness in flows remains a matter of concern.
Though the 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 #2 (Buy). Among other investment managers, Ameriprise Financial, Inc. (AMP) is scheduled to report June quarter-end results on Jul 29, while Invesco Ltd. (IVZ) and Legg Mason Inc. (LM) on Jul 31.
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