Jefferies Stock Falls Despite Earnings Beat and Record Banking Revenue

Jefferies Financial Group’s quarterly profit rose 16%, but the firm’s shares slipped after hours. (Michael Nagle/Bloomberg)

Key Points

• Jefferies Financial Group reported third-quarter earnings of $261 million, up 16% from a year ago.
• The firm’s quarterly per-share earnings of $1.08 topped Wall Street expectations of $1.00, or 89 cents on an adjusted basis.
• Despite the earnings beat, Jefferies shares fell 3.5% in after-hours trading.

Jefferies Financial Group Inc. on Monday reported quarterly earnings that topped Wall Street’s expectations, delivering its best-ever quarter in investment banking and equities as trading volumes surge globally.

The New York firm’s investment banking business, inclusive of advisory and underwriting work for clients, drove record revenue of $1.3 billion in the third quarter. Revenue tied to equities trading rose by nearly a third to a record $626 million in Jefferies’ capital markets unit.

The results underwhelmed investors, though.

Shares fell as much as 3.5% in after-hours trading before trimming some of those losses. The stock has had a bruising year, declining 25% while the S&P 500 has gained 12% over the same period.

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“We are keenly focused on improving the consistency and quality of our earnings,” Jefferies Chief Executive Richard Handler and President Brian Friedman said in a statement on Monday.

Jefferies noted several weaker areas. Asset management fees and investment return revenues fell 60% in one year to $34 million, “primarily driven by weaker performance from across several fund strategies, including Point Bonita,” the firm said, referencing the fund that was exposed to bankrupt auto-parts company First Brands.

Handler and Friedman, who provide written commentary in Jefferies’ earnings reports instead of holding calls where analysts can ask questions, wrote that they are confident in the long-term outlook for the business as they continue to reduce capital allocated to certain funds.

In contrast to muscular equities performance, fixed-income revenue fell 26% from a year ago, “reflecting ongoing slowness in market activity.”

Jefferies reported per-share earnings of $1.08 on revenue of $2.2 billion for its third quarter. Wall Street was calling for earnings per share of $1.00, or 89 cents on an adjusted basis, according to FactSet.

Overall earnings of $261 million rose 16% from a year ago. Jefferies’ revenue was in line with expectations.

Jefferies said “a strong market opportunity and continued market share gains” drove higher results across investment banking and equity underwriting. Taken together, the results should give investors a glimpse into what larger U.S. investment banks will report next month.

Write to Rebecca Ungarino at rebecca.ungarino@barrons.com

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