LPL Beats Q3 Estimates, Plans $500M Buyback

LPL Financial (LPLA) shared its earnings results early Thursday and said it would allow up to $500 million to be spent on share repurchases.

It had net income of $41.1 million, or $0.43 per share, in the third quarter vs. $33.3 million, or $0.33 per share, a year ago. On an adjusted basis, earnings were $55.8 million, or $0.55 per share, vs. $48.8 million, or $0.48 per share last year – beating analysts’ estimates by $0.01 in the most recent period.

Sales, though, were $1.055 billion, short of the $1.07 billion anticipated by analysts. Last year’s Q3 sales were $1.089 billion; in Q2’14 they were $1.090 billion.

According to LPL Chairman & CEO Mark Casady, the Q3 results were affected by “a challenging” business environment that included a “volatile equity market, decreased asset prices and near-zero percent interest rates.”

“In this environment, we had a solid business performance that was consistent with similar turbulent periods in the past,” Casady said during a call with analysts. During the period, for instance, sales commissions and net recruiting “slowed,” and lower asset levels “reduced trailing commissions, advisory fees and asset-based fees.”

The planned share buybacks, he adds, are a response to what the company says it a “temporary overhang on our shares,” which trade near $41.50 and had a 12-month high of $48.18. “As the board sees it, … our shares trade at a significant discount to what we believe is their intrinsic value.”

(In late-September, hedge fund group Marcato Capital took a 6.3% stake in the independent broker-dealer, prompting speculation that the fund, which is led by activist investor Richard McGuire, would pressure the IBD to improve its results and take steps to boost its shares.)

Advisor Business

During the period, net new advisor flows were $4.2 billion, down slightly from last quarter but up a bit from the year-ago quarter. The number of financial advisors affiliated with the independent broker-dealer was 14,073 vs. 14,130 in Q2’15 and 13,910 in Q3’14.

Revenues tied to fees and commissions (or production) was $821.5 million vs. $854.6 million in Q2’15, and the payout ratio to advisors dropped to 85.4% of production from 86.2% in the prior period.

Average annual production per rep stands at $136,000 vs. $144,000 in Q2’15 and $150,000 last year. (Production at some wirehouses stands at around $1 million on average, while at Ameriprise Financial it was $514,000 in Q3’15.)

The number of custodial clients stands at 4,277, down from 4,281 in Q2’15 and 4,407 a year ago.