Shares of Lazard Ltd. (LAZ) gained 2.8% as it reported yet another impressive quarter with adjusted earnings of 64 cents per share in second-quarter 2014, outpacing the Zacks Consensus Estimate of 55 cents. With this, the company managed to keep its surprise streak alive, marking five straight quarters of earnings beat. Also, the reported figure compared favorably with 45 cents earned in the prior-year quarter.

Results were driven by strong top-line performance, partially offset by elevated expenses. Apart from a strong performance in the asset management segment, Lazard benefited from the favorable market backdrop that witnessed a significant number of mergers and acquisitions (M&A).

Adjusted net income in the reported quarter came in at $85.4 million, up 42.6% year over year.

After considering certain non-recurring items, second-quarter 2014 net income came in at $85.2 million or 64 cents per share compared with $31.4 million or 24 cents per share in the prior-year quarter.

Quarter in Detail

In the reported quarter, adjusted operating revenues came in at $571.0 million, up 12% year over year. The rise was mainly attributable to increase in both asset management fees and financial advisory revenues. Moreover, revenues surpassed the Zacks Consensus Estimate of $540.0 million.

Adjusted operating expenses were $447.4 million, up 9% year over year. The upsurge stemmed from higher compensation and benefits expenses as well as elevated non-compensation expenses.

Adjusted compensation and benefits expense increased 9% year over year to $335.9 million. Adjusted non-compensation expense for the first quarter was $111.5 million, up 6% year over year. The ratio of compensation expense to operating revenue was 58.8% compared with 60.0% in the prior-year quarter The ratio of non-compensation expense to operating revenue was 19.5% compared with 20.5% in the prior-year quarter.

For 2014, the company targets an adjusted non-compensation expense-to-revenue ratio between 16% and 20%, while adjusted compensation ratio to be in the mid-to high-50s percentage range.

Segment Performance

Financial Advisory: The segment’s total revenue was $280.8 million, up 7% from the prior-year quarter. The rise was primarily due to increase in revenues from M&A and other advisory, capital raising, partially offset by decreased restructuring revenues.

Asset Management: The segment’s total revenue was $285.7 million, up 18% from the prior-year quarter. The rise was driven by increase in management fees and other revenues.

Corporate: The segment generated total revenue of $4.6 million, down 8% year over year.

Assets Under Management

As of Jun 30, 2014, AUM was recorded at $204.5 billion, up 25% year over year. The company recorded net inflows of $4.7 billion. Average AUM, came in at $198.5 billion, up 18% year over year.

Balance Sheet

Lazard boasts a healthy and low-risk financial position with roughly $684.5 million in cash and cash equivalents as of Jun 30, 2014, compared with $841.5 million as of Dec 31, 2013. Total stockholders’ equity was $566.7 million compared with $630.0 million as of Dec 31, 2013.

Capital Deployment

During the quarter, Lazard returned $124 million to shareholders. This included share repurchase of Class A common stock worth $86 million, dividend payment of $37 million, along with $1 million paid for meeting employee tax obligations in exchange of share issuances upon vesting of equity grants.

Our Viewpoint

Results reflect the company’s consistent efforts in achieving growth and profitability. Though the sluggish macroeconomic environment and stringent regulations might put the company’s financials under pressure in the near term, we believe that the company’s diverse footprint and cost containment initiatives position it favorably in the long run.

Lazard currently sports a Zacks Rank #1 (Strong Buy).

Performance of Other Investment Managers

Top-line growth aided by an increase in AUM drove BlackRock, Inc.’s (BLK) second-quarter adjusted earnings of $4.89 per share. It surpassed the Zacks Consensus Estimate of $4.46 for the third consecutive quarter.

Impressive performance fees drove The Blackstone Group L.P.'s (BX) second-quarter 2014 economic net income (ENI) of $1.15 per share, which outpaced the Zacks Consensus Estimate by 64%. Also, the figure was up 85% from 62 cents earned in the prior-year quarter.

Aided by higher revenues, Janus Capital Group Inc. (JNS) reported second-quarter 2014 earnings per share attributable to common shareholders of 19 cents, inching past the Zacks Consensus Estimate by a penny. Moreover, results compared favorably with the prior-year quarter adjusted earnings of 12 cents.

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