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Lazard's (LAZ) Q4 Earnings Beat Estimates, Revenues Up Y/Y

Zacks Equity Research

Lazard LAZ reported fourth-quarter 2018 adjusted earnings of 94 cents per share, in line with the Zacks Consensus Estimate. Further, the reported figure comes in lower than the prior-year figure of $1.12.

Top-line strength, aided by strong M&A activities, was a driving factor. However, escalating expenses was an undermining factor. Moreover, lower assets under management (AUM) were also a drag. Therefore, shares of Lazard declined 3.64% on investors’ concern, following the release.

Adjusted net income in the reported quarter came in at $119 million, down 20% year over year. On a GAAP basis, Lazard’s net income came in at $113 million or 89 cents per share compared with loss of $84 million or 70 cents recorded in the prior-year quarter.

For 2018, adjusted net income was $539 million or $4.16 per share compared with $501 million or $3.78 per share reported in the year ago. On a GAAP basis, net income came in at $527 million or $4.06 per share compared with $254 million or $1.91 per share recorded in the prior year.

Revenues Improve, Cost Pressure Persists

For 2018, adjusted operating revenues were $2.76 billion, up 4% year over year.

In the fourth quarter, adjusted operating revenues came in at $685 million, marginally up year over year. This upsurge stemmed from the increase in financial advisory revenues, mostly offset by lower asset-management revenues.

Adjusted operating expenses were around $503.6 million in the quarter, up 2% year over year. Higher non-compensation expenses resulted in the upswing. These increases were partly offset by lower compensation and benefit costs.

Adjusted compensation and benefits expense edged down 1%, on a year-over-year basis, to $361.4 million. Adjusted non-compensation expense for the quarter came in at $142 million, up 12% year over year.

The ratio of compensation expense to operating revenues was 52.8%, down from 53.8% witnessed in the prior-year quarter. The ratio of non-compensation expense to operating revenues was 20.8% compared with 18.5% reported in the year-ago quarter.

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.

Quarterly Segment Performance

Financial Advisory: The segment’s total revenues came in at a record $399 million, up 19% from the year-earlier quarter. The uptick primarily stemmed from increase in revenues from M&A advisory and restructuring revenues.

Asset Management: The segment’s total revenues came in at $281 million, down 17% from the prior-year quarter. Lower management and other fees led to this decline.

Corporate: The segment generated total revenues of $5.2 million compared with revenues of $8.6 million recorded in the comparable period last year.

Assets Under Management (AUM)

As of Dec 31, 2018, AUM was recorded at $214.7 billion, down 13.9% year over year. The quarter witnessed market and foreign exchange depreciation of $22.2 billion and net outflows of $3.2 billion.

Average AUM came in at $225 billion, down 8% year over year.

Stable Balance Sheet

Lazard’s cash and cash equivalents totaled $1.25 billion as of Dec 31, 2018, compared with $1.48 billion recorded as of Dec 31, 2017. The company’s stockholders’ equity was $970.1 million compared with $1.3 billion as of Dec 31, 2017.

Steady Capital-Deployment Activity

During 2018, Lazard returned $1,023 million to its shareholders. This included dividend payment of $360 million, share repurchase of $553 million and $110 million paid for meeting employee-tax obligations in exchange of share issuances upon vesting of equity grants.

Notably, during 2018, Lazard repurchased 12.2 million common stock for an average price of $45.29 per share, while during the reported quarter, 6.4 million shares were repurchased at an average price of $38.43 per share.

Our Viewpoint

Lazard’s results reflect a decent quarter for the company. Though the company’s diverse footprint, steady capital-deployment activities and revenue strength position it favorably for the long run, macro headwinds, elevated cost pressure and stringent regulations strain its financials.

Lazard Ltd Price, Consensus and EPS Surprise

Lazard Ltd Price, Consensus and EPS Surprise | 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.   

Performance of Other Asset Managers

BlackRock, Inc.’s BLK fourth-quarter 2018 adjusted earnings of $6.08 per share missed the Zacks Consensus Estimate of $6.39. Further, the figure came in 2% lower than the year-ago tally.

Federated Investors, Inc. FII delivered a positive earnings surprise of 1.7% in the fourth quarter. Earnings per share of 61 cents surpassed the Zacks Consensus Estimate of 60 cents. The figure, however, compared unfavorably with the prior-year quarter earnings of $1.31.

Legg Mason Inc. LM reported positive earnings surprise of 5.8% in third-quarter fiscal 2019 (ended Dec 31). The company reported adjusted net income of 73 cents per share, outpacing the Zacks Consensus Estimate of 69 cents. Yet, the reported figure declined 27.7% year over year.

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