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Jefferies (JEF) Stock Up 6.4% as Q2 Earnings Beat Estimates

Zacks Equity Research

Shares of Jefferies Financial Group Inc. JEF gained 6.4%, following the release of its second-quarter 2019 results. Adjusted earnings per share for the three-month period ended May 31, 2019, was 41 cents, surpassing the Zacks Consensus Estimate of 24 cents.

The company’s results benefited from improvement in revenues. However, higher expenses created a headwind. The Merchant Banking and Corporate segment’s performance was decent.

In the reported quarter, there was a non-recurring tax benefit. After taking its impact into consideration, net income attributable to shareholders for the three months ended May 31, 2019, was $670.8 million. This compares with net income attributable to shareholders of $725.5 million recorded in the three months ended Jun 30, 2018.

Revenues Improve, Expenses Rise

Net revenues for the reported quarter were $1.10 billion, up from $911.2 million recorded in the three months ended Jun 30, 2018. The figure surpassed the Zacks Consensus Estimate of $927.3 million.

Total expenses were $940.3 million, up from $907 million reported in the second quarter of 2018. This increase was due to rise in compensation and benefits costs, floor brokerage and clearing fees, and depreciation and amortization costs.

Segmental Information

Jefferies Group: This segment reported net revenues of $901.9 million in the three months ended May 31, 2019, up from $822.6 million recorded in the three months ended Jun 30, 2018. Expenses were $746.7 million, up from $700.7 million recorded in the second quarter of 2018.

Merchant Banking: Net revenues were $187.3 million in the three months ended May 31, 2019, up from $86.4 million recorded in the three months ended Jun 30, 2018. Expenses were $158.3 million, down from $169.8 million recorded in the three-month period ended Jun 30, 2018.

Corporate: This segment reported net revenues of $9 million, up from $3 million recorded in the three months ended Jun 30, 2018. Expenses were $22.9 million, down from $24.2 million recorded in the second quarter of 2018.

Share Repurchases

During the reported quarter, the company repurchased 7.8 million shares for $150 million.

Our Viewpoint

Jefferies is a geographically diversified company, with presence in almost all the major global markets. Thus, risks stemming from geographical diversification might hurt financials. Moreover, elevated costs are likely to hurt profits. However, decent revenue growth remains a positive for the company. Further, 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, Citigroup Inc. C is scheduled to report quarterly results on Jul 15. JPMorgan Chase JPM and The Bank of New York Mellon Corp. BK are expected to report numbers on Jul 16 and Jul 17, respectively.

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