Investment management firm Eaton Vance Corp. (EV) on Wednesday reported an 11% decline in its profit for the third quarter from a year ago, hurt by lower revenue from distribution and underwriting fees, in addition to higher interest expense and losses recorded on investments. Earnings per share for the quarter came in below analysts' consensus estimate.
Third Quarter Results
The Boston-based company's net income for the third quarter declined to $49.62 million, or $0.40 per share, from $55.78 million, or $0.41 per share, in the year-ago quarter. On average, eleven analysts polled by First Call/Thomson Financial expected the company to report earnings of $0.46 per share.
Total revenue for the quarter declined 1% to $282.81 million from $286.93 million reported in the same period last year. Analysts expected revenues for the quarter of $282.14 million.
Peer Performance
In July, the company's peer, California-based Franklin Resources Inc. (BEN) reported a 13.9% decline in its profit for the third quarter on lower revenues. The company reported net income for the quarter of $403.3 million, or $1.71 per share, compared to net income of $468.4 million, or $1.86 per share, in the same period last year. Total operating revenues declined 7.2% to $1.521 billion from $1.639 billion in the previous year
Other Metrics
Eaton Vance's operating income for the latest quarter was up 4% to $92.09 million from $88.86 million in the previous-year quarter. However, adjusted operating income decreased 9% to $101.79 million from $112.33 million a year ago.
Of the total revenues, investment advisory and administration fees increased 3% to $211.31 million, reflecting a 4% rise in average assets under management. Distribution and underwriter fees declined 19% due to a decrease in average fund assets that pay these fees. Service fee revenue decreased 1% due to a decline in average fund assets subject to service fees. Other revenue also declined in the third quarter, impacted by realized and unrealized losses incurred on securities held in the portfolios of consolidated funds.
Service fee expense during the latest quarter increased 6% to $30.66 million, in line with the increase in assets over one year old subject to service fees. Fund expenses climbed 19% from a year ago to $6.52 million, due to growth in fund assets for which the company employs and pays a subadvisor. Other expenses surged 31% to $28.74 million, primarily on higher expenses information technology and facilities expenses related to the company's pending move to a new headquarters in downtown Boston.
Despite higher average cash and short-term investment balances, interest income decreased 11% in the quarter to $2.38 million due to a lower effective interest rate earned on cash and short-term investments, the company noted. Meanwhile, interest expense rose to $8.41 million due to the debt offering completed in the fourth quarter of last year.
The company recorded unrealized losses on investments of $259 million for the quarter.
Third-quarter net inflows totaled $5.8 billion, up from net inflows of $4.2 billion, or $2.9 billion excluding closed-end fund flows, in the year-ago period.
The company's assets under management as of July 31, 2008 were $155.8 billion, up 2% from $152.3 billion as of July 31, 2007. The company noted that the S&P 500 Index was down 13 percent during this period. Meanwhile, assets under management declined 2% from April 30, 2008 as net inflows in the latest quarter were more than offset by market value declines of managed assets related to weak equity and credit markets.
Year-To-Date Results
The company's net income for the nine months almost doubled to $160.71 million, or $1.28 per share, from $81.43 million, or $0.60 per share, a year ago.
Total revenue for the nine-month period increased 7% to $846.03 million from $790.29 million in the same period last year.
Stock Quote
In Wednesday's regular trading session, EV is trading at $35.53, down $0.64 or 1.77% on a volume of 0.97 million shares. In the 52-week period, the stock has been trading in a range of $26.94-$50.03.
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