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Original Source: FD (FAIR DISCLOSURE) WIRE
. Dan Cataldo, Eaton Vance Corp., VP, Financial Planning & Analysis
. Jim Hawkes, Eaton Vance Corp., Chairman, CEO . Bill Steul, Eaton Vance Corp., CFO . Bill Katz, Buckingham Research, Analyst . Tom Faust, Eaton Vance Corp., President . Cynthia Mayer, Merrill Lynch, Analyst . Robert Lee, Keefe, Bruyette & Woods, Analyst . Ken Worthington, JP Morgan, Analyst . Michael Lipper, Lipper Advisory Services, Analyst
Co. reported 3Q06 revenues of $216m and 3Q06 net income of $42m. Subsequent to quarter's close, EV redeemed its exchangeable debt, effectively eliminating all debt. S&P upgraded EV's credit rating from BBB+ to A-.
A. Key Data From Call 1. 3Q06 revenues = $216m 2. 3Q06 net income = $42m 3. 3Q06 net income margin = 19.3% 4. 3Q06 opex = $148m 5. Cash, cash equivalents and short term investments on 07/31/06 =
$296m 6. EV had no outstanding long term debt at quarter-end
7. YTD stock repurchases = 4.2m shares of non-voting, common stock
at an avg. price of $27.04
S1. 3Q06 Business Performance (J.H.) 1. 3Q06 Overview and Highlights:
1. Strong 3Q06 for EV in challenging market. 1. S&P 500 was down 2.6%. 2. Broad market was off and net flows declined for industry.
3. EV showed strong net flows and made progress in most aspects
of the business. 4. Ending assets under mgt. were $120.4b.
1. 14% up from a year ago. 2. $1.6b increase over 2Q06.
5. Continued strong flows into co.'s core, open ended funds
across each of co.'s major asset classes. 6. Excellent investment performance in multiple investment disciplines. 7. 19% increase in diluted EPS over 3Q05. 8. Subsequent to quarter's close, redeemed exchangeable debt, effectively eliminated all debt and reduced diluted share count by 3.2m shares or 2.3%. 2. Growth in Assets under Mgt.: 1. Assets under mgt. up 14% from one year ago. Resulted from: 1. Organic growth of 8.5%. 2. Positive contributions from equity markets where S&P 500 was up 3.4% over past 12 months.
2. No one asset class dominated. 3. Balanced line of equity, fixed income and floating rate income products allow EV to offer attractive products in virtually any interest rate or equity market environment. 3. 3Q06 Gross Flows: 1. $20b in gross sales and inflows, 2006 is going to be another great year of new business, possibly EV's best year ever. 1. With very little contribution from closed end fund business. 2. One of investors' concerns after EV's great run of closed end fund offerings was what will EV do to maintain sales momentum when closed end market slows.
1. Open end flows have more than replaced closed end flows of
last year. 2. Last nine months show that EV's success doesn't hinge on a single category of product. 3. EV's diversified line-up of products and investment disciplines serves co. well. 4. Fiscal YTD Net Flows: 1. Slow 1Q06 was followed by 8-10% annualized organic growth rate over past two quarters. 1. Achieved largely on strength of open end fund business, which is robust.
2. Fund sales in quarter were helped modestly by one closed end
fund offering (a $140m IPO of EV Credit Opportunities Fund in
May). 3. EV's core, open end fund and private funds together generated $2.9b in net, long term fund sales in 3Q06. 5. Top-Selling Open Ended Funds in Last Ten Weeks: 1. Diversified across investment disciplines. 2. Sales rates continue to be well ahead of historic levels. 3. Fund performance is excellent across broad spectrum of disciplines including: 1. Domestic equity. 2. Tax managed equity. 3. Global equity. 4. Taxable income.
5. Tax-exempt income. 4. Mgt. can't recall a period when EV's investment performance has been better. 5. Lipper Ranking: EV is in top quintile and, in many cases, in top decile or better in a representative sample. 6. Very good performance is evident broadly throughout EV product line. 7. Looking at open ended funds on asset-weighted basis: 1. 87% of EV's equity funds, 98% of EV's fixed income funds and 70% of EV's floating rate funds beat their Lipper peer avg. over past year through July. 6. Sales and Marketing: 1. Experienced and effective sales and marketing organization is one of EV's greatest assets. 2. EV has been selectively expanding number of wholesalers. 1. Will continue to do this where mgt. sees opportunity. 7. Non-Proprietary Net Fund Flows:
1. Over past four-plus years, EV ranks as consistent leader in
non-proprietary, long term net flows. 2. Top ranking in 2003, 2004 and 2005 was helped by EV's success in bringing new closed end funds to market. 3. EV ranks Number 4 this year, in spite of a lack of meaningful closed end issuance. 1. Open end sales have filled the gap. 2. Transitioned sales momentum from closed end to open end funds without missing a beat. 8. Long Term Fund Assets under Mgt.: 1. As tracked by Strategic Insight, EV is Number 16th largest long term fund manager. 2. One of goals is to move up that ranking. 1. Has gained market share, from 37th in 1997 to 16th today. 2. Numbers 14 and 15 can hear EV coming. 9. Private Funds: 1. Also helping fund flows in 3Q06 were $1.5b of net flows in private funds. 1. Includes CLOs, institutional bank loan funds and private equity funds. 2. In July, EV closed a $725m CLO, co.'s second of the year. 1. Attractive business for EV, with good asset retention and attractive fees. 2. Tends to be lumpy business; lumps were positive in this
case. 3. CLO market remains strong, but EV doesn't anticipate closing another before the end of FY06. 10. Separate Account Business: 1. Includes retail managed accounts, institutional and high net worth. 2. Net flows into retail managed accounts were mixed. 1. Due to the loss of a single large relationship managed by Parametric Portfolio Associates. 2. Absent this relationship loss, which was a relatively low fee, overlay client, net flows for 3Q06 would've been more than $400m. 3. For past 12 months, retail managed accounts are showing 18% organic growth rate. 4. Encouraging developments suggest EV may see an acceleration
of growth. 5. Atlanta Capital small and SmidCap disciplines, which have very good performance, …