Raymond James Financial Inc. (RJF) reported third-quarter fiscal 2014 earnings per share of 85 cents, outpacing the Zacks Consensus Estimate of 76 cents. Further, this was up 31% from adjusted earnings of 65 cents recorded in the prior-year quarter.
Better-than-expected results were driven by a rise in revenues, partially offset by higher operating expenses. Further, improvement in assets under management (AUM.TO) and client assets under administration as well as a strong balance sheet position were the tailwinds.
GAAP Net income was $122.7 million, up 46% from the year-ago quarter.
Raymond James’ total revenue came in at $1.24 billion, up 9% year over year. The rise was largely attributable to growth in all revenue components except other income.
Further, segment-wise, on a year-over-year basis, Asset Management recorded highest growth with total revenue increasing 19%. This was followed by RJ Bank, Private Client Group and Capital Markets with 13%, 10% and 6% revenue growth, respectively. However, Others reported a 44% decline in total revenues.
Non-interest expenses rose 6% from the prior-year quarter to $1.04 billion. The increase was primarily due to higher compensation, commissions and benefits costs, bank loan loss provision and investment sub-advisory fees, partially offset by lower Communications and information processing expenses.
As of Jun 30, 2014, client assets under administration rose 18% to $479.0 billion while financial AUM was up 25% to $65.3 billion, both on a year-over-year basis.
As of Jun 30, 2014, Raymond James reported total assets of $23.1 billion, up 4% from the prior-year quarter. Shareholders’ equity came in at $4.02 billion, increasing 13% year over year.
Book value per share as of Jun 30, 2014 was $28.59, up from $25.62 as of Jun 30, 2013.
Capital and Profitability Ratios
Both capital and profitability ratios improved. As of Jun 30, 2014, total capital ratio was 20.5%, up from 19.2% as of Jun 30, 2013. Additionally, Tier 1 capital ratio was 15.8%, increasing from 14.2% in the prior-year quarter.
Moreover, return on equity (non-GAAP) was 12.4% as of Jun 30, 2014, up from 10.5% as of Jun 30, 2013.
Raymond James’ strong balance sheet and continued efforts to boost segmental performance will expectedly strengthen its financials going forward. Moreover, the company’s capital strength and synergies from acquisitions are likely to be accretive to earnings. However, we believe that the company needs to control expenses more efficiently.
Additionally, regulatory issues, a low interest-rate environment and sluggish economy remain matters of concern.
At present, Raymond James carries a Zacks Rank #4 (Sell)
Performance of Other Investment Brokerage Firms
Interactive Brokers Group, Inc.’s (IBKR) second-quarter adjusted earnings per share lagged the Zacks Consensus Estimate but were up on a year over year basis. Results benefited mainly from growth in revenues as well as substantial control in non-interest expenses.
The Charles Schwab Corp’s (SCHW) second-quarter earnings surpassed the Zacks Consensus Estimate on the back of robust top-line growth. However, this was partially offset by a marginal rise in operating expenses and higher provision for loan losses.
TD Ameritrade Holding Corporation’s (AMTD) fiscal third-quarter 2014 earnings came in line with the Zacks Consensus Estimate. Results reflected increased revenues. However, higher expenses were the downside.