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Why Is Lazard Ltd (LAZ) Down 13.4% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Lazard Ltd (LAZ). Shares have lost about 13.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lazard Ltd due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Lazard Q2 Earnings Beat Estimates on Lower Expenses

Lazard delivered a positive earnings surprise of 15.9% in second-quarter 2019. The company reported adjusted earnings of 73 cents per share, comfortably surpassing the Zacks Consensus Estimate of 63 cents. However, the reported figure comes in lower than the prior-year quarter’s reported figure of $1.10.

Decline in expenses dsiplayed prudent cost management. Assets under management (AUM) remained stable. However, lower revenues were an undermining factor.

Adjusted net income in the reported quarter came in at $86 million, plunging 40% year over year. On a GAAP basis, Lazard’s net income came in at $66 million or 55 cents per share compared with $147 million or $1.13 recorded in the prior-year quarter.

Revenues Down, Costs Fall

In the second quarter, adjusted operating revenues came in at $630 million, down 15% year over year. This downside chiefly resulted from decrease in financial advisory and asset-management revenues.

Adjusted operating expenses were around $490.1 million in the quarter, down 7.8% year over year. Lower compensation and benefits, partly offset by higher non-compensation expenses resulted in the decline.

Adjusted compensation and benefits expense declined 12%, on a year-over-year basis, to $362.1 million. Adjusted non-compensation expense for the quarter came in at $128 million, up 8% year over year.

The ratio of compensation expense to operating revenues was 57.5%, up from the prior-year quarter’s 55.8%. The ratio of non-compensation expense to operating revenues was 20.3% compared with 16% 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.

Segment Performance

Financial Advisory: The segment’s total revenues came in at record $328.8 million, down 21% from the year-earlier quarter. This decline primarily stemmed from decrease in revenues from M&A advisory and restructuring revenues.

Asset Management: The segment’s total revenues were $291.3 million, down 12% from the prior-year quarter. Higher management and other fees led to this upside.

Corporate: The segment generated total negative revenues of $9.6 million compared with negative revenues of $3.7 million in the comparable period last year.

Stable Assets Under Management (AUM)

As of Jun 30, 2019, AUM was recorded at $237 billion, in line with the prior-year quarter. The quarter witnessed market and foreign exchange appreciation of $7.7 billion and net outflows of $5.2 billion.

Average AUM came in at $237 billion, down 3% year over year.

Stable Balance Sheet

Lazard’s cash and cash equivalents totaled $919 million as of Jun 30, 2019, compared with $1.25 billion recorded as of Dec 31, 2018. The company’s stockholders’ equity was $717.9 million compared with $970.1 million as of Dec 31, 2018.

Steady Capital-Deployment Activity

During the April-June quarter, Lazard returned $217 million to its shareholders. This included dividend payment of $52 million, share repurchase of $160 million and $5 million paid for meeting employee-tax obligations in exchange of share issuances upon vesting of equity grants.

Outlook
Management expects Financial Advisory in the second half of the year to be stronger than the first half. M&A activities picked up in the second quarter and is continuing through July, notably in Europe and North America.

Compensation expectations will increase through 2019 on account of revenues, business mix and the pace of hiring.

The company expects annual effective tax rate for this year in the mid-20% range.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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