Raymond James Lags on Q2 Earnings - Analyst Blog

Raymond James Financial Inc. RJF reported second-quarter fiscal 2014 earnings per share of 72 cents, which missed the Zacks Consensus Estimate of 78 cents. However, the reported figure was significantly higher than 56 cents earned in the prior-year quarter.

Results came in lower than expected mainly due to rise in non-interest expenses, partly offset by higher revenues. Rise in assets under management (AUM) and client assets under administration were among the positives.

Non-GAAP net income came in at $104.6 million, up 8% year over year.

GAAP net income for the quarter was $104.6 million or 72 cents per share, compared with $80.0 million or 56 cents per share in the year-ago quarter.

Behind the Headlines

Raymond James' total revenue for the quarter came in at $1.2 billion, up 3% year over year. The rise was mainly attributable to increase in securities commissions and fees, investment banking, investment advisory, account and service fees as well as net trading profit. However, these positives were partly offset by a fall in revenues generated from other items. The reported figure was in line with the Zacks Consensus Estimate.

Non-interest expenses rose 4% year over year to $1.0 billion  primarily due to increase in compensation and benefits expenses, communication and information processing, business development costs and investment sub-advisory fees. These were partly offset by a fall in bank loan loss provision and decreases in clearance and floor brokerage costs. Raymond James did not incur any acquisition-related expenses in the reported quarter as compared with $20.9 million in the year-ago quarter.

As of Mar 31, 2014, client assets under administration rose 12.6% to $458.1 billion while AUM climbed 22.2% to $62.3 billion, both on a year-over-year basis.

Balance Sheet

As of Mar 31, 2014, Raymond James reported total assets of $22.9 billion, up 0.9% from the prior-year quarter. Shareholders' equity came in at $3.9 billion, increasing 12.0% year over year.

Book value per share as of Mar 31, 2014 was $27.75, up from $25.14 as of Mar 31, 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. However, we believe that the company needs to control expenses more aggressively.

Additionally, 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

The Charles Schwab Corp.'s SCHW first-quarter 2014 earnings of 24 cents per share beat the Zacks Consensus Estimate of 22 cents. Results benefited from higher revenues and prudent expense management, partially offset by decline in benefit from provisions.

Interactive Brokers Group, Inc.'s IBKR reported first-quarter 2014 adjusted earnings per share of 34 cents, which surpassed the Zacks Consensus Estimate of 29 cents. Results benefited mainly from revenue growth, robust credit quality and additional capital strength, partially offset by a slight rise in expenses.

TD Ameritrade Holding Corporation AMTD reported second-quarter fiscal 2014 earnings of 35 cents per share, which beat the Zacks Consensus Estimate by a penny. Results were primarily driven by solid top-line growth.