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Lazard (LAZ) Q1 Earnings Miss on Lower Revenues, Costs Down

Following the first-quarter 2020 results, shares of Lazard LAZ have declined 8.96%. The company reported first-quarter 2020 adjusted earnings of 58 cents per share, missing the Zacks Consensus Estimate of 62 cents. The reported figure also comes in lower than the prior-year quarter reported figure of 87 cents.

Lower revenues and a fall in assets under management (AUM) negatively impacted the results. However, reduction in expenses was a positive.

Adjusted net income in the reported quarter came in at $67 million, plunging 37% year over year. On a GAAP basis, Lazard’s net income came in at $64 million or 56 cents per share compared with the $97 million or 80 cents recorded in the prior-year quarter.

Revenues Down, Costs Decline

In the first quarter, adjusted operating revenues came in at $563 million, down 9% year over year. This decline chiefly resulted from fall in asset-management and financial advisory revenues, while negative corporate revenues were recorded.

Adjusted operating expenses were $450.3 million in the quarter, down 4.6% year over year. Lower compensation and benefits as well as non-compensation expenses resulted in this decline.

Adjusted compensation and benefits expense slipped 5%, on a year-over-year basis, to $337.7 million. Adjusted non-compensation expense for the quarter came in at $112.6 million, down 3% year over year.

The ratio of compensation expense to operating revenues was 60%, up from the year-earlier quarter’s 57.5%. The ratio of non-compensation expense to operating revenues was 20% compared with the year-ago quarter’s 18.7%.

The company affirmed its annual targets of an adjusted non-compensation expense-to-revenue ratio between 16% and 20%, while the compensation-to-operating revenue ratio target is in the mid-to-high 50 percentage range.

Segment Performance

Financial Advisory: The segment’s total revenues came in at a record $294.8 million, down 11% from the year-earlier quarter.

Asset Management: The segment’s total revenues were $267 million, down 5% from the prior-year quarter. Reduction in management and other fees resulted in this downside, partly offset by higher incentive fees.

Corporate: The segment generated negative revenues of $0.9 million compared with the positive $6.3 million recorded in the year-ago period.

Steady AUM

As of Mar 31, 2020, AUM was recorded at $193 billion, down 18% from the prior-year quarter. The quarter witnessed a market depreciation of $43.7 billion, foreign-exchange depreciation of $6.6 billion and net outflows of $4.9 billion.

Average AUM came in at $222 billion, down 3% year over year.

Stable Balance Sheet

Lazard’s cash and cash equivalents totaled $793.5 million as of Mar 31, 2020, compared with $1.23 billion recorded as of Dec 31, 2019. The company’s stockholders’ equity was $559.6 million compared with $681.6 million as of Dec 31, 2019.

Steady Capital-Deployment Activity

During the January-March period, the company repurchased 2.9 million shares at an average cost of $32.7 per share and paid dividend worth $49 million.

Our Viewpoint

Results reflect Lazard’s disappointing performance during the March-end quarter. Though diverse footprint, steady capital-deployment activities and controlled expenses position the company favorably for the long haul, macro headwinds, revenue declines and overall outflows strained financials.

Lazard Ltd Price, Consensus and EPS Surprise

Lazard Ltd Price, Consensus and EPS Surprise
Lazard Ltd Price, Consensus and EPS Surprise

Lazard Ltd price-consensus-eps-surprise-chart | Lazard Ltd Quote

Currently, Lazard carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.    

Competitive Landscape

Invesco IVZ reported first-quarter 2020 adjusted earnings of 34 cents per share, missing the Zacks Consensus Estimate of 56 cents. Also, the bottom line plummeted 39.3% from the prior-year quarter. Escalating operating expenses and net outflows were the major headwinds amid the coronavirus scare. Nevertheless, a rise in the AUM balance and higher revenues — driven by the OppenheimerFunds buyout — were the supporting factors.

Cohen & Steers’ CNS adjusted earnings of 61 cents per share missed the Zacks Consensus Estimate of 66 cents in the first quarter. However, the bottom line came in 5.2% higher than the year-ago reported figure. Rise in expenses and fall in AUM balance were the major headwinds. Yet, improvement in revenues and modest asset inflows offered some support.

T. Rowe Price TROW delivered first-quarter 2020 adjusted earnings per share of $1.87, which outpaced the Zacks Consensus Estimate of $1.85. The reported figure came in line with the year-ago quarter’s reported tally. Results were aided by higher revenues on solid growth in investment advisory fees. Nonetheless, escalating expenses were an undermining factor. Also, the AUM declined year over year.

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