* Profit tumbles 13 pct as expenses surge
* 2nd-qtr adjusted EPS 49 cents vs analyst view 56 cents
* LPL shares dive 25 pct early, down 13 pct midday
* Company declares initial 12 cents/shr dividend
By Joseph A. Giannone
July 31 LPL Financial Holdings Inc
second-quarter earnings tumbled 13 percent, far short of analyst
expectations, as aggressive recruiting and a series of expansion
efforts pushed expenses higher.
Shares of LPL, the largest U.S. independent brokerage, were
down 13 percent in midday trade on the Nasdaq. They slid as much
as 25 percent earlier, hitting their lowest since September.
Boston-based LPL said net income fell to $39.5 million, or
35 cents a share, for the quarter that ended June 30, from $45.5
million, or 40 cents s share, a year earlier. Excluding certain
charges and other adjustments, LPL earned 49 cents a share.
Analysts on average had forecast much higher earnings of 56
cents per share, according to Thomson Reuters I/B/E/S.
"Underperformance was driven entirely by higher than
estimated expenses," said Sandler O'Neill analyst Devin Ryan in
a client note. "Revenues and the production ratio were right in
line with our expectations."
LPL said net revenue for the quarter rose 1.5 percent to
$907.8 million, slightly exceeding expectations of $913.6
million, even as choppy markets reduced investors' confidence.
Commission revenue in the quarter fell 2.7 percent from the
year-ago period, though overall revenue rose due to the addition
of new brokers and increased advisory fee income. LPL declared
its first quarterly cash dividend of 12 cents a share.
"Investors are exhibiting more cautious behavior in light of
the uncertain market conditions, which manifests itself in lower
investment activity and reduced trading," LPL Chief Executive
Mark Casady said in a statement.
LPL sells technology, clearing and other services to
self-employed brokers, who retain the lion's share of the fees
and commissions they generate but pay their own overhead
expenses. LPL and other independent brokerages have grown in
recent years as thousands of advisers have left traditional
brokers and banks to form their own practices.
During the second quarter, LPL increased its ranks of
advisers by 223 to 13,185 by the end of June. Client assets in
fee-based advisory programs rose almost 8 percent to $111.4
billion, while overall client assets at the brokerage rose 3.6
percent to $353 billion.
But expenses rose at a faster pace, reflecting LPL's recent
acquisitions, expansion of its retirement services and launch of
a new mass-market business. LPL executives said they are
pursuing steps, such as outsourcing, to cut expenses that have
risen as the company supports larger, more complex practices.
President Robert Moore stressed that LPL is making
acquisitions and investments to boost growth later. This year
LPL paid about $38 million to buy Fortigent LLC, a firm that
provides investment management and consulting service to
advisers who serve high net-worth people.
He declined to comment on LPL's sinking stock price. "We
will deal with the volatility that happens in our business and
that happens in our share price. Those are transitory things; We
are here to make sure we have sustainable growth," Moore said in
a brief telephone interview.
The company also launched a mass-market financial planning
business, NestWise, that began with the takeover this month of a
small firm called Veritat Advisors.
Moore said these takeovers and expansion efforts will reduce
earnings by 3 to 5 cents a share in each of the next two
quarters. NestWise, moreover, is not expected to break even
until 2014. LPL said.