Jefferies Financial Group Experiences Revenue Drop Despite Rise in Investment Banking

  • Stock Market News
Jefferies Financial Group Experiences Revenue Drop Despite Rise in Investment Banking
Credit: © Reuters.

Shares of Jefferies Financial Group Inc. (JEF) fell 2.2% in after-hours trading on Thursday, following the announcement of lower-than-expected third-quarter fiscal 2023 results ending August 31. The adjusted earnings per share of 32 cents lagged behind the Zacks Consensus Estimate of 34 cents, comparing unfavorably with $1.10 earned in the same quarter of the previous year.

The company's revenues and expenses both saw a decline, with net revenues falling 22% year over year to $1.18 billion, missing the Zacks Consensus Estimate of $1.26 billion. Total non-interest expenses were $1.09 billion, down by 10%, mainly due to lower compensation and benefits expenses and a significant decrease in cost of sales.

Despite the overall fall in revenues, Jefferies posted its first quarterly rise in investment banking revenue since the end of 2021. Investment banking fees climbed 26.5% from the previous quarter to $645 million, representing a decrease of 5.4% from last year's $682 million.

Results for the reported quarter excluded pre-tax losses on a legacy merchant banking portfolio. After considering this, net income attributable to shareholders was $51.4 million, down 74% year over year.

In terms of segment performance, net revenues for Investment Banking and Capital Markets were $1.17 billion, up 5% from the prior-year quarter due to strength in underwriting business and solid performance of capital markets. However, Asset Management net revenues were substantially down to $10.1 million from $398.3 million in the year-ago quarter.

Jefferies did not repurchase any shares during the fiscal third quarter but has a share buyback authorization of $250 million available for future use.

The company's stock fell as much as 3.4% in after-hours trading on Wednesday and was 2.4% lower Thursday morning in pre-market trading. Since the beginning of January, the stock has risen 8%, outpacing most Wall Street banks with large investment banking divisions.

The firm paid an additional $68 million more in compensation expenses compared to the previous quarter in a bid to strengthen its investment banking team, adding 39 new managing directors for the division year to date.

Despite challenging market conditions for investment banking operations, robust fixed income and equity trading business, rebound in underwriting operations, and lower expenses are expected to support Jefferies' financials. Jefferies currently carries a Zacks Rank #3 (Hold).

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