Why Is Lazard Ltd (LAZ) Down 2.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Lazard Ltd (LAZ). Shares have lost about 2.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lazard Ltd due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Lazard Q1 Earnings Miss on Lower Revenues, Expenses Down

Lazard reported first-quarter 2020 adjusted earnings of 58 cents per share, missing the Zacks Consensus Estimate of 62 cents. The reported figure also comes in lower than the prior-year quarter reported figure of 87 cents.

Lower revenues and a fall in AUM negatively impacted the results. However, reduction in expenses was a positive.

Adjusted net income in the reported quarter came in at $67 million, plunging 37% year over year. On a GAAP basis, Lazard’s net income came in at $64 million or 56 cents per share compared with the $97 million or 80 cents recorded in the prior-year quarter.

Revenues Down, Costs Decline

In the first quarter, adjusted operating revenues came in at $563 million, down 9% year over year. This decline chiefly resulted from fall in asset-management and financial advisory revenues, while negative corporate revenues were recorded.

Adjusted operating expenses were $450.3 million in the quarter, down 4.6% year over year. Lower compensation and benefits as well as non-compensation expenses resulted in this decline.

Adjusted compensation and benefits expense slipped 5%, on a year-over-year basis, to $337.7 million. Adjusted non-compensation expense for the quarter came in at $112.6 million, down 3% year over year.

The ratio of compensation expense to operating revenues was 60%, up from the year-earlier quarter’s 57.5%. The ratio of non-compensation expense to operating revenues was 20% compared with the year-ago quarter’s 18.7%.

The company affirmed its annual targets 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 percentage range.

Segment Performance

Financial Advisory: The segment’s total revenues came in at a record $294.8 million, down 11% from the year-earlier quarter.

Asset Management: The segment’s total revenues were $267 million, down 5% from the prior-year quarter. Reduction in management and other fees resulted in this downside, partly offset by higher incentive fees.

Corporate: The segment generated negative revenues of $0.9 million compared with the positive $6.3 million recorded in the year-ago period.

Steady AUM

As of Mar 31, 2020, AUM was recorded at $193 billion, down 18% from the prior-year quarter. The quarter witnessed a market depreciation of $43.7 billion, foreign-exchange depreciation of $6.6 billion and net outflows of $4.9 billion.

Average AUM came in at $222 billion, down 3% year over year.

Stable Balance Sheet

Lazard’s cash and cash equivalents totaled $793.5 million as of Mar 31, 2020, compared with $1.23 billion recorded as of Dec 31, 2019. The company’s stockholders’ equity was $559.6 million compared with $681.6 million as of Dec 31, 2019.

Steady Capital-Deployment Activity

During the January-March period, the company repurchased 2.9 million shares at an average cost of $32.7 per share and paid dividend worth $49 million.

As of Mar 31, 2020, the company’s remaining share repurchase authorization came in at $306 million.

Outlook

Management expects annual effective tax rate for this year in the mid-20% range.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months. The consensus estimate has shifted 22.22% due to these changes.

VGM Scores

Currently, Lazard Ltd has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Lazard Ltd has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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