Asset Managers
Eaton Vance Earnings Fall
Christopher Sahl
05/23/07 - 12:30 PM EDT
Eaton Vance's(EV - Cramer's Take - Stockpickr) earnings fell 42% in the second quarter of its fiscal year due to expenses connected with the initial public offering of a closed-end fund.
The Boston money manager's net income for the three months ended March 31 was $23.1 million, or 17 cents per diluted share, down from $39.9 million, or 29 cents per diluted share, during the same period in 2006.
The results fell short of Wall Street's expectations; analysts polled by Thomson First Call were looking for net income of 21 cents per diluted share.
On Feb. 23, Eaton Vance raised $5.8 billion with the IPO of its (EXG - Cramer's Take - Stockpickr)Tax-Managed Global Diversified Equity Income Fund (EXG). It was the largest IPO of a closed-end fund on record.
But expenses associated with the IPO reduced second-quarter income by 25 cents per diluted share. They included $46.3 million in structuring fees to distribution partners in the underwriting department and $8.1 million in incentives to its sales and marketing employees.
Despite the earnings hit, CEO James B. Hawkes expressed confidence that the marketing costs would pay off over the long haul. "We'll see the benefits flow into earnings numbers in subsequent quarters," he said during a conference call.
He added that the company would be bringing a "follow-on" closed-end fund to market in July, but declined to discuss details.
Eaton Vance's total assets under management rose 26% to $150 billion by the end of the quarter, up from $118.8 billion at the end of the same period a year ago. Net new money accounted for some $21.5 billion of the increase and market appreciation accounted for another $9.8 billion.
On the back of higher assets under management, revenue grew 23% to $260.2 million from $211.8 million.
Excluding the $5.8 billion raised by the closed-end fund IPO, net new money flowing into mutual funds and separate account inflows grew 63% in the second quarter compared with the same period in 2006.
For the six months ended April 30, the company had earnings of 19 cents per diluted share, compared with 57 cents per diluted share for the same period last year.
Earnings in the latest period were curbed by 58 cents per diluted share due to costs related to closed-end funds such as structuring fee payments and sales incentives.
These costs also included a one-time payment of $52.2 million dealing with sever compensation agreements with Merrill Lynch(MER - Cramer's Take - Stockpickr) and A.G. Edwards (AGE - Cramer's Take - Stockpickr) connected to previously offered closed-end funds.