Aided by higher revenues, CBRE Group Inc. (CBG) reported first-quarter 2014 adjusted earnings of 25 cents per share, well ahead of the Zacks Consensus Estimate of 17 cents per share and up 56% year over year.
On a GAAP basis, CBRE reported earnings of 20 cents per share, reflecting an 82% hike from 11 cents earned in the prior-year quarter.
Revenues came in at $1.9 billion, well ahead of the Zacks Consensus Estimate of $1.73 billion and up 26% year over year (y/y). Adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) came in at $198.8 million, reflecting an increase of 23% from the prior-year quarter.
Global property sales revenue rose 27% for the quarter while occupier outsourcing business – Global Corporate Services (GCS) – revenue increased 61% (reflecting 12% organic growth) and global leasing revenue climbed 10%.
Despite the decline in lending activity with the U.S. GSEs, commercial mortgage brokerage revenue increased 13% as a result of a rise in U.S. loan originations with other capital sources and hike in loan sales activity.
Quarter in Detail
Geographically, EMEA Region (primarily Europe) was a top performer with 127% y/y growth in revenue (122% in local currency), led by solid contributions from the acquisition of Norland Managed Services Ltd. – the building technical engineering services provider. This was coupled with double-digit organic growth across its major business lines as market activity continued to recover.
CBRE’s largest business segment – Americas Region – also registered double-digit revenue growth (10% y/y). Solid results were driven by growth in property sales and leasing as well as the occupier outsourcing business.
Furthermore, helped by continued recovery in property sales, the Asia Pacific Region reported 8% y/y growth in U.S. dollars (18% in local currency as foreign currency conversion muted the company’s growth to some extent).
However, revenue remained unchanged year over year at Development Services (real estate development and investment activities primarily in the U.S.) while revenue at Global Investment Management (investment management operations in the U.S., Europe and Asia) fell 11% y/y. Notably, CBRE signed contracts with 25 new occupier customers and enhanced its service offering with 24 existing clients.
Liquidity
CBRE exited first-quarter 2014 with cash and cash equivalents of $428.2 million, down from $491.9 million at year-end 2013.
Our Viewpoint
We are encouraged with better-than-expected results at CBRE Group for the second consecutive quarter. With market conditions continuing to improve, we believe that opportunistic acquisitions would serve as growth drivers, supplementing the company’s organic growth. Improving property sales, leasing and outsourcing business also augur well going forward.
Despite the regulatory limits on GSEs lending and unfavorable foreign currency movement, we believe that the strategic investments in people and platform stand good for the long-term perspective of this Zacks Rank #3 (Hold) stock and would help it to enhance its market share.
Other players in the real estate operations industry, which look attractive at current levels, include HFF, Inc. (HF), Reis, Inc. (REIS) and Jones Lang LaSalle Incorporated (JLL). While HFF and Reis carry a Zacks Rank #1 (Strong Buy), Jones Lang has a Zacks Rank #2 (Buy).
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