Lazard (LAZ) Stock Up On Q1 Earnings Beat, Revenues Down

Shares of Lazard Ltd. (NYSE:LAZ) rallied 7.7% after the company delivered a positive earnings surprise of 1.5% in first-quarter 2019. The company reported adjusted earnings of 87 cents per share, comfortably surpassing the Zacks Consensus Estimate of 58 cents. However, the reported figure comes in lower than the prior-year figure of $1.26.

Results benefited from lower expenses. However, lower revenues and declining assets under management (AUM) were the undermining factors.

Adjusted net income in the first quarter came in at $106 million, down 36% year over year. On a GAAP basis, Lazard’s net income came in at $97 million or 80 cents per share compared with $160 million or $1.21 recorded in the prior-year quarter.

Revenues Decline, Costs Down

In the first quarter, adjusted operating revenues came in at $620 million, down 14.4% year over year. This downside resulted from the decrease in financial advisory revenues and asset-management revenues, partly offset by higher corporate revenues.

Adjusted operating expenses were around $472.2 million in the quarter, down 8.8% year over year. Lower adjusted compensation and benefits expenses resulted in this fall. These decreases were partly offset by higher non-compensation expense.

Adjusted compensation and benefits expense moved down 12%, on a year-over-year basis, to $356.5 million. Adjusted non-compensation expense for the quarter came in at $115.7 million, up 1% year over year.

The ratio of compensation expense to operating revenues was 57.5%, up from 55.8% witnessed in the prior-year quarter. The ratio of non-compensation expense to operating revenues was 18.7% compared with 15.8% reported in the year-ago quarter.

The company affirmed its annual target 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% range.

Quarterly Segment Performance

Financial Advisory: The segment’s total revenues came in at $330 million, down 15% from the year-earlier quarter. This decline resulted from lower operating revenues in Europe and Asia, offset by higher revenues in America.

Asset Management: The segment’s total revenues came in at $284 million, down 14% from the prior-year quarter. Lower management and other fees led to this decline.

Corporate: The segment generated total revenues of $6.3 million compared with revenues of $5.2 million recorded in the comparable period last year.

Assets Under Management (AUM)

As of Mar 31, 2019, AUM was recorded at $235 billion, down 6.6% year over year. The quarter witnessed market and foreign exchange appreciation of $20.2 billion and net inflows of $38 million.

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Average AUM came in at $228.8 billion, down 10.5% year over year.

Stable Balance Sheet

Lazard’s cash and cash equivalents totaled $1.01 billion as of Mar 31, 2019, compared with $1.25 billion recorded as of Dec 31, 2018. The company’s stockholders’ equity was $771.4 million compared with $970.1 million as of Dec 31, 2018.

Steady Capital-Deployment Activity

During the first quarter 2019, Lazard returned $386 million to its shareholders. This included dividend payment of $103 million, share repurchase of $192 million and $91 million paid for meeting employee-tax obligations in exchange of share issuances upon vesting of equity grants.

Recently, Lazard announced quarterly dividend of 47 cents per share, marking an increase of 7% from the prior payout. The dividend will be paid on May 17, to shareholders on record as of May 6, 2019.

Our Viewpoint

Lazard’s diverse footprint and steady capital-deployment activities position it favorably for the long run. However, macro headwinds and stringent regulations strain its financials.