Shares of global investment firm – Janus Capital Group, Inc. (JNS) jumped 12.96% following the release of its impressive fourth-quarter 2014 results on Jan 22, before the market opened. The company reported fourth-quarter earnings per share attributable to common shareholders of 24 cents, beating the Zacks Consensus Estimate by 4 cents. Moreover, results compared favorably with the prior-year quarter earnings of 21 cents.
Better-than-expected results reflected top-line growth and increased assets under management (AUM) aided by net inflows, depicting stability in earnings. However, rise in operating expenses were headwinds for the quarter.
Net income stood at $46.7 million, up 21.9% from $38.3 million in the prior-year quarter.
For full-year 2014, net income totaled $154.4 million or 81 cents per share, up from $114.7 million or 62 cents per share in the prior year. Moreover, earnings outpaced the Zacks Consensus Estimate by 3 cents.
Performance in Detail
For full-year 2014, total revenue rose 9.1% year over year to $953.2 million. Moreover, the revenue figure beat the Zacks Consensus Estimate of $941 million.
Total revenue increased 12.6% year over year to $254.8 million in the quarter, primarily due to higher investment management fee revenues, shareowner servicing fees and other and reduced negative performance fees. Moreover, revenues beat the Zacks Consensus Estimate of $242 million.
Total operating expenses increased 9.5% on a year-over-year basis to $174.3 million in the quarter. The increase was primarily a result of higher employee compensation and benefits and distribution expenses. These were partly offset by lower depreciation and amortization along with reduced long-term incentive compensation.
Asset Position
Average AUM increased to $179.2 billion from $170.3 billion in the prior-year quarter and $176.5 billion in the prior quarter.
As of Dec 31, 2014, Janus Capital reported total AUM of $183.1 billion, up from $172.5 billion as of Dec 31, 2013 and $173.0 billion as of Sep 30, 2014. Notably, total AUM does not include $2.4 billion of VelocityShares assets.
Notably, the reported quarter witnessed increase in complex-wide assets, reflecting net market appreciation of $6.8 billion and long-term net inflows of $2.0 billion. Fundamental and mathematical equity long-term net outflows summed to $0.2 billion and $0.6 billion, respectively, while fixed income long-term net inflows totaled $2.8 billion during the quarter.
Balance Sheet
As of Dec 31, 2014, Janus Capital had stockholders’ equity of $1.6 billion, cash and investments of $796.5 million and outstanding debt of $450.5 million compared with stockholders’ equity of $1.6 billion, cash and investments of $776.1 million and outstanding debt of $449.8 million in the prior quarter.
Cash flow from operations during the reported quarter was $88.4 million compared with $92.1 million in the prior-year quarter.
Capital Deployment Activity
During fourth-quarter 2014, Janus Capital repurchased over 1.56 million shares of its common stock at an average price of $14.83 per share and a total cost of $23.1 million.
Expense Outlook
Base salaries, commissions and variable cash compensation contribute to the compensation-to-revenue ratio. Management stated that new investments will result in increased headcounts, which will consequently lead to higher base salaries. Further, a period of increased sales would result in higher commissions expense. Hence, compensation-to-revenue ratios are expected to rise in 2015 and be around 40-45%.
For 2015, assuming a stable market, long-term incentive expenses (LTI) are expected to be $70 million to $75 million.
Our Viewpoint
Results reflect a strong quarter for Janus Capital. Further, we remain encouraged by the company’s strategic initiatives to boost business.
The company has the best-in-class investment boutique with potential for AUM and revenue along with competitive leverage growth. Capital deployment activities of the company are also commendable.
Though the fixed income segment and global operations are showing signs of improvement, the company’s equity-heavy portfolio makes it vulnerable to the equity market. Nevertheless, given its healthy balance sheet, we believe Janus Capital has the potential to perform well in the long run aided by a significant rebound in these markets.
Janus Capital currently carries a Zacks Rank #2 (Buy).
Among other investment managers, Ameriprise Financial, Inc. (AMP) is scheduled to report December quarter-end results on Jan 28, while Invesco Ltd. (IVZ) will report on Jan 29 and Legg Mason Inc. (LM) on Jan 30.
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