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Jefferies' (JEF) Q3 Earnings Lag Estimates as Costs Rise

Zacks Equity Research

Jefferies Financial Group Inc.’s JEF earnings per share for the three-month period ended Aug 31, 2019, of 15 cents lagged the Zacks Consensus Estimate of 42 cents. Further, the figure compared unfavorably with earnings of 55 cents per share recorded in the three-month period ended Sep 30, 2018.

The company’s results were adversely impacted by a decline in revenues and higher expenses. Both the Merchant Banking segment and Jefferies Group’s performance was relatively weak in the reported quarter when compared with the prior-year quarter. However, the Corporate segment’s performance remained decent.

Net income attributable to shareholders for the three months ended Aug 31, 2019, was $48.5 million, down from $192.6 million recorded in the three months ended Sep 30, 2018.

Revenues Decline, Expenses Rise

Net revenues for the reported quarter were $856.8 million, down from $1.15 billion recorded in the three months ended Sep 30, 2018. The figure lagged the Zacks Consensus Estimate of $1.07 billion.

Total expenses were $915.8 million, up from $897 million reported in the third quarter of 2018. This increase can be attributed to a rise in almost all expense components except compensation and benefits costs, and interest expenses.

Segmental Information

Jefferies Group: This segment reported net revenues of $777.2 million in the three months ended Aug 31, 2019, marginally down from $777.6 million recorded in the three months ended Sep 30, 2018. Expenses were $694.1 million, up from $690.5 million recorded in the third quarter of 2018.

Merchant Banking: Net revenues were $75.5 million in the three months ended Aug 31, 2019, down from $369.3 million recorded in the three months ended Sep 30, 2018. Expenses were $190.7 million, up from $169.6 million recorded in the three-month period ended Sep 30, 2018.

Corporate: This segment reported net revenues of $9 million, up from $8.7 million recorded in the three months ended Sep 30, 2018. Expenses were $20.7 million, down from $24.1 million recorded in the third quarter of 2018.

Our Viewpoint

Jefferies is a geographically diversified company, with presence in almost all the major global markets. Consequently, risks stemming from geographical diversification might hurt financials. Moreover, elevated costs are likely to hurt profits. Nevertheless, supported by a solid capital position, Jefferies is expected to continue enhancing shareholder value through efficient capital deployment activities.

JEFFERIES FINANCIAL GROUP INC. Price, Consensus and EPS Surprise
 

JEFFERIES FINANCIAL GROUP INC. Price, Consensus and EPS Surprise

JEFFERIES FINANCIAL GROUP INC. price-consensus-eps-surprise-chart | JEFFERIES FINANCIAL GROUP INC. Quote

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

Among the other finance companies, JPMorgan Chase JPM and Citigroup C are expected to report quarterly results on Oct 15. The Bank of New York Mellon Corp. BK is expected to report numbers the next day.

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