NEW YORK (CNNfn) - Stilwell Financial, the majority owner of fund giant Janus, beat third-quarter earnings estimates on Thursday by 6 cents a share, thanks to better than 90 percent increases in revenue and average assets under management compared with the year-ago quarter.|
Year over year, earnings per share grew more than 100 percent. But investors are unlikely to see those numbers again any time soon, said one Stilwell analyst, who expects the company to feel the lagging effects of the current market downturn in the fourth quarter and 2001.
Stilwell (SV: Research, Estimates), which was spun off by Kansas City Southern Industries (KSU: Research, Estimates) this summer, said it earned 73 cents per diluted share on net income of $170.1 million for the quarter ended Sept. 30, compared with 36 cents per share on net income of $82.7 million during the third quarter of 1999.
Analysts polled by earnings tracker First Call expected the asset management firm to earn 67 cents a share for the quarter.
Stilwell said average assets under management rose to $324.2 billion in the third quarter from $168.4 billion in the third quarter of 1999.
Revenue for the quarter totaled $609.5 million, nearly double that in the same period last year.
Year to date, revenue grew nearly 108 percent to $1.72 billion, while net income rose grew by more than 105 percent.
"These extraordinary results speak to the hard work, dedication and management expertise at our subsidiaries," Stilwell President and CEO Landon H. Rowland said in a statement.
Stilwell is composed of four primary entities: Janus, which accounts for the bulk of Stilwell revenue; fund firms Berger LLC and Nelson Money Managers PLC; and DST Systems.
"Stilwell's subsidiaries continued to experience net cash inflows during third quarter 2000 despite the well-documented market fluctuations throughout the quarter," Rowland added.
For the quarter, Stilwell reported a total of $8.5 billion in net cash inflow, up 8 percent from the same period in 1999.
Stock down nearly 6 percent
Indeed, "They were good earnings," said Kent Johnson, an analyst with Sit Investment Associates, which also holds a small position in Stilwell.
Still, the stock was struggling in afternoon trade, down $2.37 to $37.69 and well below its 52-week high of $54.50.
In the past, the stock has gotten hit when investors felt uncertain about prospects for the growth-oriented Janus. And since investors tend to perceive Janus funds as closely tied to the fortunes of the Nasdaq, which was down nearly 3 percent in the afternoon, that may account in large part for the downfall in the afternoon, said Johnson, Lehman Brothers analyst Mark Constant and Morningstar stock analyst Steve Hahn.
It also could be that some shareholders were waiting for an upside surprise and were doing some selling, since the stock was trading higher in the morning, Constant said.
But in the long term, he said, the stock will continued to be tied to Janus' fate.
"Janus is a great company. It's also a largely undiversified company that is now feeling the pain that was their glory," Constant said.
The fund firm is still the best-selling fund group for the year, according to data from Financial Research Corp., but if fund flows slow for the industry, they will slow for Janus, Hahn and the others agreed.
For investors who believe that growth stocks' decline in recent months has hit a bottom, Stilwell is a great buy right now at a cheap price, Constant said, noting that he is still maintaining his "outperform" rating on the company.
But barring a very sharp market rebound, he said, revenue for Stilwell going forward is going to be much tempered by the lagging effect of "a negative market impact on assets that they manage."
A tempered 2001
Johnson agreed, noting that even in a less volatile market, the company's 100 percent year-over-year earnings growth was "unsustainable."
When it comes to the potential for an increase in Stilwell's revenue in fiscal year 2001, "Anything north of 10 percent would be respectable," Constant said.
Hahn is more optimistic. Even if Janus ends the year on less than a stellar note, it will be the place to which investors return when and if the market rebounds, he said. Accordingly, he anticipates that at the very least Stilwell will see revenue growth in line with the 14.5 percent consensus estimate for other asset management firms next year.
"I think they will be able to sustain a fair rate of growth," Hahn said.
But, of course, Johnson said, "the biggest swing factor (in this business) is the market."