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Lazard (LAZ) Q3 Earnings & Revenues Beat Estimates, Costs Up

Lazard Ltd. LAZ reported a positive surprise of 16.4% in third-quarter 2017. The company reported adjusted earnings of 85 cents per share, comfortably surpassing the Zacks Consensus Estimate of 73 cents. Further, the reported figure came in line with the prior-year quarter.

Top-line strength and growth in assets under management (AUM) were positives. However, rise in expenses were an undermining factor.

Adjusted net income in the quarter came in at $112 million, stable year over year. On a GAAP basis, Lazard’s net income came in at $109 million or 82 cents per share compared with $113 million or 85 cents recorded in the prior-year quarter.

Revenues Escalate, Cost Pressure Persists

In the third quarter, adjusted operating revenues came in at $627.3 million, up 3% year over year. The upsurge can chiefly be attributed to an increase in asset management revenues. Moreover, revenues outpaced the Zacks Consensus Estimate of $589 million.

Adjusted operating expenses were around $464.9 million in the quarter, up 3.3% year over year. Higher compensation and benefits, and non-compensation expenses led to the upsurge.

Adjusted compensation and benefits expense flared up 3% on a year-over-year basis to $354.4 million. Adjusted non-compensation expense for the quarter was $110.5 million, up 5% year over year.

The ratio of compensation expense to operating revenues was 56.5%, in line with the prior-year quarter. The ratio of non-compensation expense to operating revenues was 17.6% compared with 17.2% 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 $305.9 million, down 11% from the year-earlier quarter. The decline was primarily due to decrease in revenues from strategic advisory, partially offset by higher restructuring revenues.

Asset Management: The segment’s total revenues were $315.5 million, up 19% from the prior-year quarter. Higher management, incentive and other fees led to this rise.

Corporate: The segment generated total revenues of $6 million, which increased significantly from the prior-year quarter.

Strong Assets Under Management (AUM)

As of Sep 30, 2017, AUM was recorded at $238 billion, up 16% year over year. The quarter experienced market and foreign exchange appreciation of $12.3 billion and net inflows of $15 million.

Average AUM came in at $234 billion, rising 16% year over year.

Stable Balance Sheet

Lazard’s cash and cash equivalents totaled $1.25 billion as of Sep 30, 2017, compared with $1.16 billion recorded as of Dec 31, 2016. The company’s stockholders’ equity was $1.31 billion compared with $1.29 billion as of Dec 31, 2016.

Steady Capital Deployment Activity

During third-quarter 2017, Lazard returned $119 million to its shareholders. This included dividend payment of $50 million, share repurchase of million and $1 million paid for meeting employee tax obligations in exchange of share issuances upon vesting of equity grants.

Our Viewpoint

Results reflect an impressive quarter for Lazard. Though the company’s diverse footprint, steady capital deployment activities and revenue strength position it favorably for the long run, macro headwinds, elevated costs pressure and stringent regulations put the company’s financials under strain.

Currently, Lazard carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.    

Competitive Landscape

Ameriprise Financial Inc.’s AMP third-quarter 2017 operating earnings per share of $3.53 comfortably surpassed the Zacks Consensus Estimate of $2.86. Also, the figure compares favorably with $1.37 per share registered in the year-ago quarter. Results benefited from a decline in expenses. In addition, growth in AUM and assets under administration (AUA) were on the positive side. However, a slight decline in revenues acted as a headwind.

Waddell & Reed Financial Inc.’s WDR third-quarter 2017 earnings of 45 cents per share outpaced the Zacks Consensus Estimate of 40 cents. However, it compared unfavorably with the year-ago quarter’s earnings of 65 cents. Results were adversely impacted by lower revenues and a rise in expenses. Furthermore, despite higher gross sales and a fall in net outflows during the quarter, AUM continued to decline. Nevertheless, a solid balance sheet position was a positive for the company.

BlackRock, Inc. BLK reported third-quarter 2017 adjusted earnings of $5.92 per share, which outpaced the Zacks Consensus Estimate of $5.59. Also, the bottom line came in 15% higher than the year-ago quarter. Results benefited from improvement in revenues, rise in AUM and steady long-term inflows. Nevertheless, increase in operating expenses acted as a headwind.

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