Lazard Ltd.’s (LAZ) fourth-quarter 2013 adjusted earnings came in at 81 cents per share, easily beating the Zacks Consensus Estimate of 60 cents. Moreover, this compares favorably with 61 cents earned in the prior-year quarter.
Better-than-expected results were driven by strong top-line performance, primarily aided by increase in financial advisory as well as asset management revenues. Moreover, the company’s strong capital position and higher assets under management (AUM) were the positives. However, elevated compensation and benefits expenses were a dampener.
After considering certain non-recurring items, Lazard’s fourth-quarter 2013 net income came in at $53 million or 40 cents per share. This compared favorably with the prior-year quarter net loss of $5 million or 5 cents per share.
For full-year 2013, adjusted earnings were $2.01 per share, outpacing the Zacks Consensus Estimate by 21 cents. Moreover, it was above the prior-year earnings of $1.44 per share.
After considering certain non-recurring items, net income came in at $160 million or $1.21 per share compared with the prior-year net income of $84 million or 65 cents per share.
Performance in Detail
For full-year 2013, Lazard’s operating revenues, on an adjusted basis, came in at $2.0 billion, up 3% from the prior year. Results were in line with the Zacks Consensus Estimate.
In the final quarter, adjusted operating revenues came in at $620 million, up 8% year over year. The rise was mainly attributable to increase in financial advisory revenues and asset management fees. Moreover, revenues surpassed the Zacks Consensus Estimate of $561 million.
Operating expenses remained almost in line with the prior-year quarter at $457 million, as higher compensation and benefits expenses were offset by lower non-compensation expenses.
Adjusted non-compensation expense for the final quarter was $109 million, down 5% year over year. The ratio of non-compensation expense to operating revenues was 17.5% compared with 20.0% in the prior-year quarter.
For 2014, the company targets a non-compensation expense-to-revenues ratio between 16% and 20%, while adjusted compensation ratio to be in the mid-to high-50s percentage range.
Segment Performance
Financial Advisory: The segment’s total revenue was $315 million, up 2% from the prior-year quarter. The rise was primarily due to increase in M&A and other advisory revenues, partially offset by decreased restructuring operating revenues.
Asset Management: The segment’s total revenue was $293 million, up 20% from the prior-year quarter. The rise was driven by increase in management fees, other revenues and incentive fees.
Corporate: The segment generated total revenue of $12.3 million, down 36% year over year.
Assets Under Management
AUM was recorded at $187 billion as of Dec 31, 2013, up 12% year over year. The company recorded net outflows of $1.9 billion and market appreciation of $21.8 billion. Average AUM as of Dec 31, 2013, came in at $174 billion, up 12% year over year.
Capital Position
Lazard boasts a healthy and low-risk financial position with roughly $841 million in cash and cash equivalents as of Dec 31, 2013, compared with $850 million as of Dec 31, 2012. Total stockholders’ equity was $630 million compared with $652 million as of Dec 31, 2012.
Capital Deployment
In 2013, Lazard returned $416 million to shareholders. This included share repurchase of Class A common stock worth $161 million, dividend payment worth $123 million, along with $132 million paid for meeting employee tax obligations in exchange of share issuances upon vesting of equity grants.
During fourth-quarter 2013, Lazard repurchased 1.3 million shares at an average price of $42.40 for a total cost of $55 million. At year end, the company had a remaining share repurchase authorization worth $122 million.
Recently, the board of Lazard approved a 20% increase in its quarterly cash dividend. The company will now pay a quarterly dividend of 30 cents per share against 25 cents a share distributed previously. The increased quarterly dividend will be paid on Feb 21, 2014 to shareholders of record as on Feb 10.
Competitive Landscape
Among other asset managers, Franklin Resources Inc. (BEN), Janus Capital Group Inc. (JNS) and Legg Mason Inc.’s (LM) December quarter results outpaced the Zacks Consensus Estimate.
Our Viewpoint
The sluggish macroeconomic environment, stringent regulations and net outflows will likely put Lazard’s profitability under pressure in the near term. However, we believe that the company’s diverse footprint and cost containment initiatives position it favorably in the long run. Moreover, Lazard’s capital deployment efforts are expected to further enhance investors’ confidence in the stock.
Shares of Lazard currently carry a Zacks Rank #1 (Strong Buy).
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