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Why Is Lazard Ltd (LAZ) Down 6.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Lazard Ltd (LAZ). Shares have lost about 6.1% 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's Q4 Earnings Beat Estimates

Lazard 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 AUM were also a drag.

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.

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.


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.

While non-compensation ratio is currently at the lower end of the target range over the cycle, quarterly variability in non-comp expenses is expected as the company continues to ramp up investments for growth.

The tax reforms provide a significant benefit to the tax rate under the current business structure. Management estimates that with no change to structure, steady-state annual tax rate will contract by approximately 200-300 bps, resulting in a future effective tax rate in the mid-20s in 2019 with cash taxes expected to be in the mid-to-high teens before discrete items.

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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