Shares of Eaton Vance Corp.’s (EV) declined 1.4% on Thursday following its first-quarter fiscal 2014 adjusted earnings (ended Jan 31) of 58 cents per share, which lagged the Zacks Consensus Estimate of 60 cents. However, this was 16% above the year-ago figure of 50 cents.
Lower-than-expected results were adversely impacted by mounting operating expense, partially offset by top-line growth. However, an impressive rise in assets under management (AUM) and improved balance sheet were the tailwinds.
Eaton Vance’s net income grew 24% year over year to $76.7 million in the quarter.
Performance in Detail
Eaton Vance’s total revenue for the reported quarter came in at $360.3 million, increasing 13% year over year. The rise was attributable to increase in investment advisory and administrative fees as well as service fees and other revenues. These were partly offset by lower distribution and underwriter fees. However, the figure missed the Zacks Consensus Estimate of $367.0 million.
Total expenses rose 8% from the prior-year quarter to $236.1 million. The increase was primarily due to higher compensation and related costs as well as fund-related expenses.
Total operating income for the quarter increased 23% year over year to $124.2 million.
As of Jan 31, 2014, Eaton Vance had $361.9 million in cash and cash investments as compared with $461.9 million in Oct 31, 2013. Further, the company had no borrowings outstanding against its $300 million credit facility.
Assets Under Management
During the reported quarter, consolidated AUM rose 12% year over year to $278.6 billion, reflecting net inflows of $18.3 billion and market appreciation of $12.6 billion.
As of Jan 31, 2014, long-term fund AUM was $132.0 billion, up 11% year over year. Moreover, institutional AUM came in at $94.9 billion, reflecting a 14% increase from the year-ago quarter. Further, high net worth AUM rose 19% year over year to $19.4 billion while retail AUM was $32.1 billion, up 11% from the year-ago quarter.
Share Repurchase
During the said quarter, Eaton Vance repurchased 1.1 million shares of its Non-Voting Common Stock for $43.5 million under its repurchase authorization. The company has a share repurchase authorization of 8.0 million, out of which around 7.8 million shares remain outstanding.
Performance of Other Asset Managers
Among other asset managers, Ameriprise Financial Inc. (AMP), BlackRock, Inc. (BLK) and Invesco Ltd. (IVZ) reported better-than-expected fourth-quarter 2013 earnings. Results benefited from a rise in the top line, partially offset by higher expenses. Further, all three companies recorded robust AUM growth.
Our Viewpoint
Eaton Vance is expected to benefit from increased investments in the near term. Moreover, the growing need for risk management and alternative investment solutions within the financial service industry will likely be accretive to the company’s financials going forward. We believe that the company’s diversified revenue mix and footprint, along with steadily increasing AUM will drive growth in the future.
However, we remain concerned about the adverse effects of the present capital market volatility on the company’s financial performance in the near term.
Eaton Vance currently carries a Zacks Rank #4 (Sell).
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