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21.05.2019 14:55
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Eaton Vance Corp. Report for the Three and Six Month Periods Ended April 30, 2019
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PR Newswire
BOSTON, May 21, 2019
BOSTON, May 21, 2019 /PRNewswire/ -- Eaton Vance Corp. (NYSE: EV) today reported earnings per diluted share of $0.89 for the second quarter of fiscal 2019, an increase of 14 percent from $0.78 of earnings per diluted share in the second quarter of fiscal 2018 and an increase of 19 percent from $0.75 of earnings per diluted share in the first quarter of fiscal 2019.
The Company reported adjusted earnings per diluted share(1) of $0.89 for the second quarter of fiscal 2019, an increase of 16 percent from $0.77 of adjusted earnings per diluted share in the second quarter of fiscal 2018 and an increase of 22 percent from $0.73 of adjusted earnings per diluted share in the first quarter of fiscal 2019. Earnings under U.S. generally accepted accounting principles (U.S. GAAP) matched adjusted earnings in the second quarter of fiscal 2019. Earnings under U.S. GAAP exceeded adjusted earnings by $0.01 per diluted share in the second quarter of fiscal 2018 and $0.02 per diluted share in the first quarter of fiscal 2019, reflecting the reversal of net excess tax benefits related to stock‐based awards of $1.9 million and $2.9 million, respectively.
Net gains and other investment income related to seed capital investments contributed $0.03 and $0.01 to earnings per diluted share in the second quarter of fiscal 2019 and fiscal 2018, respectively, and were negligible in the first quarter of fiscal 2019. Net income from consolidated collateralized loan obligation (CLO) entities contributed $0.07 to earnings per diluted share in the second quarter of fiscal 2019, was negligible in the second quarter of fiscal 2018 and reduced earnings by $0.02 per diluted share in the first quarter of fiscal 2019.
Consolidated net inflows of $4.6 billion in the second quarter of fiscal 2019 represent a 4 percent annualized internal growth rate in managed assets (consolidated net inflows divided by beginning of period consolidated assets under management). This compares to net inflows of $4.4 billion and 4 percent annualized internal growth in managed assets in the second quarter of fiscal 2018 and net inflows of $1.5 billion and annualized internal growth in managed assets of 1 percent in the first quarter of fiscal 2019. Excluding exposure management mandates, the Company's annualized internal growth rate in managed assets was 3 percent in the second quarter of fiscal 2019, 9 percent in the second quarter of fiscal 2018 and 2 percent in the first quarter of fiscal 2019.
The Company's annualized internal management fee revenue growth rate (management fees attributable to consolidated inflows less management fees attributable to consolidated outflows divided by beginning of period consolidated management fee revenue) was 1 percent in the second quarter of fiscal 2019, 6 percent in the second quarter of fiscal 2018 and -4 percent in the first quarter of fiscal 2019. These growth rates reflect the Company's retrospective adoption of Accounting Standard Update (ASU) 2014-09, Revenue from Contracts with Customers, on November 1, 2018, which provides for management fee revenue to be recorded net of associated subsidy expenses.
Consolidated assets under management were $469.9 billion on April 30, 2019, up 7 percent from $440.1 billion of consolidated managed assets on April 30, 2018 and up 6 percent from $444.7 billion of consolidated managed assets on January 31, 2019. The year-over-year increase in consolidated assets under management reflects net inflows of $11.9 billion and market price appreciation of $17.9 billion. The sequential quarterly increase in consolidated assets under management reflects net inflows of $4.6 billion and market price appreciation of $20.7 billion in the second quarter of fiscal 2019.
"Strong market returns and continued net inflows combined to drive Eaton Vance's consolidated assets under management to record levels in the second quarter of fiscal 2019," said Thomas E. Faust Jr., Chairman and Chief Executive Officer. "While improved from the prior quarter, the Company's operating income continues to be adversely affected by declines in managed assets of certain higher-fee strategies and spending in support of business growth."
Average consolidated assets under management were $456.2 billion in the second quarter of fiscal 2019, up 4 percent from $440.6 billion in the second quarter of fiscal 2018 and up 4 percent from $437.4 billion in the first quarter of fiscal 2019.
As shown in Attachment 10, excluding performance-based fees, annualized management fee rates on consolidated assets under management averaged 31.8 basis points in the second quarter of fiscal 2019, down 3 percent from 32.8 basis points in the second quarter of fiscal 2018 and down 1 percent from 32.0 basis points in the first quarter of fiscal 2019. Changes in average annualized management fee rates for the compared periods primarily reflect shifts in the Company's mix of business. Average annualized management fee rates for prior year periods have been restated to reflect the retrospective adoption of ASU 2014-09 on November 1, 2018 as described above.
Attachments 5 and 6 summarize the Company's consolidated assets under management and net flows by investment mandate and investment vehicle. Attachments 7, 8 and 9 summarize the Company's ending consolidated assets under management by investment mandate, investment vehicle and investment affiliate. Attachment 10 shows the Company's average annualized management fee rates by investment mandate.
As shown in Attachments 5 and 6, consolidated sales and other inflows were $36.8 billion in the second quarter of fiscal 2019, down 7 percent from $39.4 billion in the second quarter of fiscal 2018 and down 18 percent from $44.7 billion in the first quarter of fiscal 2019.
Consolidated redemptions and other outflows were $32.2 billion in the second quarter of fiscal 2019, down 8 percent from $35.0 billion in the second quarter of fiscal 2018 and down 25 percent from $43.2 billion in the first quarter of fiscal 2019.
As of April 30, 2019, the Company's 49 percent-owned affiliate Hexavest Inc. (Hexavest) managed $13.9 billion of client assets, down 12 percent from $15.8 billion of managed assets on April 30, 2018 and up 5 percent from $13.2 billion of managed assets on January 31, 2019. Hexavest had net inflows of $0.2 billion in the second quarter of fiscal 2019 versus net outflows of $0.2 billion in the second quarter of fiscal 2018 and net outflows of $0.7 billion in the first quarter of fiscal 2019. Attachment 11 summarizes the assets under management and net flows of Hexavest. Other than Eaton Vance-sponsored funds for which Hexavest is the adviser or sub-adviser, the managed assets and flows of Hexavest are not included in Eaton Vance consolidated totals.
| Financial Highlights(2) | | | | | | | | ||
| (in thousands, except per share figures) | | | | | | | | ||
| | | | | | | | | ||
| | Three Months Ended | ||||||||
| | April 30, | January 31, | April 30, | ||||||
| | 2019 | 2019 | 2018 | ||||||
| Revenue | | 411,861 | | $ | 406,416 | | $ | 412,700 | |
| Expenses | | 284,688 | | | 285,286 | | | 280,014 | |
| Operating income | | 127,173 | | | 121,130 | | | 132,686 | |
| Operating margin | | 30.9 | % | | 29.8 | % | | 32.2 | % |
| Non-operating income (expense) | | 20,291 | | | (3,193) | | | (5,349) | |
| Income taxes | | (37,069) | | | (27,625) | | | (34,044) | |
| Equity in net income of affiliates, net of tax | | 2,735 | | | 1,948 | | | 3,113 | |
| Net income | | 113,130 | | | 92,260 | | | 96,406 | |
| Net (income) loss attributable to non- | | | | | | | | | |
| controlling and other beneficial interests | | (11,323) | | | (5,459) | | | 195 | |
| Net income attributable to | | | | | | | | | |
| Eaton Vance Corp. shareholders | $ | 101,807 | | $ | 86,801 | | $ | 96,601 | |
| Adjusted net income attributable to | | | | | | | | | |
| Eaton Vance Corp. shareholders | $ | 101,530 | | $ | 83,852 | | $ | 94,765 | |
| Earnings per diluted share | $ | 0.89 | | $ | 0.75 | | $ | 0.78 | |
| Adjusted earnings per diluted share | $ | 0.89 | | $ | 0.73 | | $ | 0.77 | |
Second Quarter Fiscal 2019 vs. Second Quarter Fiscal 2018(2)
Revenue totaled $411.9 million in the second quarter of fiscal 2019 compared to $412.7 million in the second quarter of fiscal 2018. Management fees were up 1 percent, as a 4 percent increase in average consolidated assets under management more than offset lower consolidated average management fee rates. Performance fees were $1.8 million in the second quarter of fiscal 2019 and $(0.5) million in the second quarter of fiscal 2018. Distribution and service fee revenues were collectively down 7 percent, reflecting lower managed assets in fund share classes that are subject to these fees.
Operating expenses increased 2 percent to $284.7 million in the second quarter of fiscal 2019 from $280.0 million in the second quarter of fiscal 2018. Increases in compensation, service fee expense, amortization of deferred sales commissions, fund-related expenses and other operating expenses were partially offset by a decrease in distribution expense. The increase in compensation reflects higher salaries and benefits associated with increases in headcount, higher stock-based compensation and $1.6 million of costs associated with employee terminations recognized in the second quarter of fiscal 2019, partially offset by lower sales-based incentive compensation and operating income-based bonus accruals. The increase in service fee expense reflects higher private fund service fee payments, partially offset by lower Class C service fee payments. The increase in amortization of deferred sales commissions reflects higher private fund and Class C commission amortization. The increase in fund-related expenses reflects higher sub-advisory fees paid and an increase in fund expenses borne by the Company on funds for which it earns an all-in fee. Other operating expenses increased 3 percent, primarily reflecting higher information technology spending, partially offset by lower travel and other corporate expenses. The decrease in distribution expense primarily reflects lower Class C distribution fee payments.
Operating income decreased 4 percent to $127.2 million in the second quarter of fiscal 2019 from $132.7 million in the second quarter of fiscal 2018. Operating margin decreased to 30.9 percent in the second quarter of fiscal 2019 from 32.2 percent in the second quarter of fiscal 2018.
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