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Jones Lang LaSalle Gets Back to Earnings Growth

For the first time this year, commercial property services company Jones Lang LaSalle (NYSE: JLL) reported an earnings increase in order to go with its strong revenue growth. Due to a combination of reasons it was always going to be a transformational year for the company, but now investors are starting to see the fruits of management's efforts to drive growth.

Let's take a closer look at the earnings report and what's going with the company.

Favorable commercial property markets are helping Jones Lang LaSalle. Image source: Getty Images.

Jones Lang LaSalle third-quarter earnings: The raw numbers

Management doesn't give quarterly guidance, so it's earnings reports are more than capable of creating volatility in the stock price. That said, management maintained its full-year guidance -- more on that in a moment -- and delivered a broadly positive set of earnings.

Starting with the headline numbers from the quarter:

  • Total fee revenue increased 12% in local currency from the same period last year.
  • Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) increased 31% in local currency.
  • Adjusted diluted EPS of $1.96 increased 38% compared the same period last year.

It was a strong quarter of earnings growth, and, as you can see below, it marks a return to EBITDA growth for the company.

Data source: Jones Lang LaSalle presentations. Year over year growth in local currency.

Guidance

As noted earlier, management doesn't give guidance beyond a full-year overview. That said, the company's now in its fourth quarter and as there's no change to the full-year guidance it's reasonable to conclude the company is on track with its objectives.

Full-year guidance expectations are as follows:

  • Fee revenue growth of 8% to 11%
  • Adjusted EBITDA margin of 10% to 12%
  • LaSalle incentive fees of $30 million, and equity earnings of $20 million
  • Currency movements to impact EPS by plus or minus $0.15

Given that total fee revenue has increased 16% in the first nine months of 2017 and LaSalle's incentive fees were $48.5 million in the same period, it's fair to say Jones Lang LaSalle is well positioned to meet its objectives in 2017.

How Jones Lang LaSalle got back to EBITDA growth

It's useful to break out the company's earnings by business by segment. The first of two main activities is real estate services (RES), which comprises leasing, property, and facility management, capital markets and hotels, and project and development services. The second is a real estate investment firm, LaSalle Investment Management (LaSalle).

The quarter marked a return to EBITDA growth at RES in Europe and LaSalle.

Segment  

Fee Revenue

Growth

Adjusted EBITDA

Growth

RES Americas

$749.2 million

5%

$90.5 million

10%

RES Europe, Middle East, Africa

$463.6 million

21%

$13.9 million

47%

RES Asia Pacific

$310 million

13%

$30.3 million

35%

LaSalle Investment Management

$102.1 million

28%

$33.3 million

236%

Total

$1.625 billion

12%

$167.9 million

31%

Data source: Jones Lang LaSalle presentations. Year oover year growth in local currency.

As readers can learn from reviewing Jones Lang LaSalle's first-quarter and second-quarter earnings, the company's earnings has lagged revenue growth due to a combination of factors:

  • Anticipated declines in LaSalle's incentive and transaction fees earlier in the year, partly caused by shifting to annuity based revenue.
  • Continued investment in technology and data in order to fuel growth.
  • Margin dilution to integrating acquisitions such as Integral, a UK mechanical and electrical property maintenance company acquired in August 2016.

Most of these factors are self-imposed by the company and intended to drive growth and reduce earnings volatility (shift toward annuity-based revenue). The good news from the third quarter is Jones Lang LaSalle managed to offset these headwinds and got back to earnings growth.

Looking ahead

CEO Christian Ulbrich believes "continued healthy market fundamentals in the global economy and many real estate markets worldwide provide a good foundation through the end of the year and into 2018." Investors will be hoping the company can meet its full-year objectives in the coming quarter.

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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Jones Lang LaSalle. The Motley Fool has a disclosure policy.