Bloomberg News

Jefferies Misses Analysts’ Estimates on Drop in Fixed-Income

September 20, 2011

(Updates with CEO’s comments on fixed income in third paragraph, investment banking in 10th paragraph.)

Sept. 20 (Bloomberg) -- Jefferies Group Inc. said fiscal third-quarter profit fell 49 percent on a drop in fixed-income trading revenue. The stock rose as much as 4.8 percent as the firm said it would buy back as many as 20 million shares.

Profit for the three months ended Aug. 31 was $23 million, or 10 cents a share, excluding the acquisition of Prudential Bache’s global commodities group, the New York-based firm said today in a statement. The average estimate of eight analysts surveyed by Bloomberg was for earnings of 20 cents. Net income was $68.3 million, or 30 cents a share, compared with $44.8 million, or 22 cents, in the same period a year earlier.

Fixed-income trading suffered as corporations pulled back from the market and investors grappled with fallout from Standard & Poor’s downgrade of the U.S. credit rating. JPMorgan Chase & Co. and Morgan Stanley said earlier this month that they were facing a difficult third quarter as well.

“The environment in August was outright brutal,” Richard Handler, chairman and chief executive officer, said in a conference call after earnings were released. “August was the third-worst month in the history of the U.S. credit markets after September and October of 2008.”

Jefferies, which was down 47 percent this year through yesterday on the New York Stock Exchange, climbed 31 cents, or 2.2 percent to $14.43 at 11:32 a.m.

Buyback Program

The company said its 20 million buyback authorization is in addition to the 3.1 million shares it purchased during the quarter. The previous buyback program has 6.7 million shares remaining, Jefferies said.

“They’re sending a signal that they think their stock is very undervalued,” said Lauren Smith, an analyst with New York- based KBW Inc. who has an “outperform” rating on Jefferies shares. “They can be out there buying back stock and I absolutely expect that’s what they will be doing, which is good for shareholders and should be good for the stock price.

Net revenue fell 1.5 percent to $509.3 million from $517.3 million a year earlier. Analysts had expected revenue of $618.8 million, according to the Bloomberg survey.

Revenue from sales and trading decreased 21 percent to $212.4 million. Revenue from fixed-income trading, led by William Jennings and Johan Eveland, fell 80 percent to $33.1 million. Revenue from trading equities increased 16 percent to $126.9 million from $109.3 million in the year-earlier period.

Investment Banking

Investment-banking revenue increased 19 percent to $293.8 million from $246.2 million in the same period last year.

“While we are disappointed with our third-quarter trading results, we are extremely pleased with the overall position of our firm today,” Handler said. “Our third-quarter results reflect the unique period of dislocation and are not indicative of where our firm is positioned today.”

The firm increased its headcount by about 29 percent since last year to 3,842 employees. The pace of hiring will probably slow, Handler said.

--Editors: Steve Dickson, David Scheer

To contact the reporters on this story: Maryellen Tighe in New York at mtighe6@bloomberg.net; Donal Griffin in New York at dgriffin10@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.


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