Following fiscal fourth-quarter 2014 earnings release, shares of Raymond James Financial Inc. (RJF) slipped 1.1% in the after-market trading session, on concerns over mounting operating expenses. The company reported adjusted earnings per share of 94 cents, surpassing the Zacks Consensus Estimate of 87 cents and coming a penny above the prior-year quarter figure.
For fiscal 2014, adjusted earnings came in at $3.32 per share, which outpaced the Zacks Consensus Estimate of $3.25. This was also 13% above the year-ago figure of $2.95.
Results benefited from strong revenue growth, partly offset by higher operating expenses. Further, improvement in assets under management (AUM) and client assets under administration as well as a strong balance sheet position acted as the tailwinds.
GAAP net income for the fiscal fourth quarter was $136.4 million, up 16% from the year-ago quarter. Further, for fiscal 2014, net income (on GAAP basis) totaled $480.2 million, increasing 15% year-over-year.
Performance Details
In fiscal fourth quarter, total revenue was $1.31 billion, improving 14% year over year. The rise was largely attributable to growth in all revenue components except other income and net trading profit.
For fiscal 2014, total revenue grew 8% from the prior year to $5.0 billion. The increase was driven by a rise in all revenue components except other income.
Further, segment-wise for the fiscal fourth quarter, Asset Management recorded highest growth with total revenue increasing 17%. This was followed by Private Client Group, Capital Markets and RJ Bank, witnessing revenue growths of 16%, 9% and 5%, respectively. However, Others reported a 35% decline in total revenues.
Non-interest expenses increased 12% from the prior-year quarter to $1.08 billion. The rise was primarily due to higher compensation, commissions and benefits costs, bank loan loss provision and investment sub-advisory fees, partially offset by lower communications and information processing expenses.
As of Sep 30, 2014, client assets under administration rose 12% to $475.0 billion while financial AUM was up 15% to $64.6 billion, both on a year-over-year basis.
Balance Sheet
As of Sep 30, 2014, Raymond James reported total assets of $23.3 billion, up marginally from $23.2 billion in the prior-year. Shareholders' equity came in at $4.14 billion, increasing 13% year over year.
Book value per share as of Sep 30, 2014 was $29.40, up from $26.40 as of Sep 30, 2013.
Capital and Profitability Ratios
Capital ratios continued to show improvement. As of Sep 30, 2014, total capital ratio was 20.6%, up from 19.8% as of Sep 30, 2013. Additionally, Tier 1 capital ratio was 16.4%, increasing from 14.5% in the prior-year period.
Moreover, return on equity (non-GAAP) was 13.4% as of Sep 30, 2014, down from 14.7% as of Sep 30, 2013.
Our Take
Raymond James' strong balance sheet and continued efforts to boost segmental performance will expectedly strengthen its financials, going forward. Moreover, the company's capital strength and synergies from acquisitions are likely to be accretive to earnings.
Nevertheless, we believe that the company needs to control its expenses more efficiently. Also, regulatory issues, a low interest-rate environment and sluggish economy remain matters of concern.
At present, Raymond James carries a Zacks Rank #2 (Buy).
Performance of Other Investment Brokerage Firms
Interactive Brokers Group, Inc.'s (IBKR) third-quarter adjusted earnings per share missed the Zacks Consensus Estimate. Substantial trading losses in the Market Making as well as the Corporate segment resulted in an overall poor performance. Higher expenses further weighed on the results.
The Charles Schwab Corp's (SCHW) third-quarter earnings lagged the Zacks Consensus Estimate on higher expenses. However, this was partially offset by strong revenue growth and lower provision for loan losses.
Driven by strong trading activity, E*TRADE Financial Corporation (ETFC) delivered a positive earnings surprise of 31.8% in third-quarter 2014. Impressive results were driven by higher net operating interest income and reduced provision for loan losses, partially mitigated by a fall in non-interest income and rise in expenses.
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