Asset manager Eaton Vance Corp.’s (EV) reported fiscal third-quarter net income of $31.2 million, a decline of 37% year-over-year as performance was affected by sluggish fee income amid weak fund inflows. Excluding a charge associated with an IPO, earnings per share came in at 28 cents, matching the Zacks Consensus Estimate.

The company stated that quarterly revenue slumped 19% year over year to $228.4 million as investment advisory and administration fees declined 17% to $175.2 million. Distribution and service fees also fell 31% and 26% to $21.7 million and $29.9 million respectively.

The slump in fees was caused by a decline in assets under management (AUM) to $143.7 billion, compared to $155.8 billion in the year-ago quarter as clients adopted a cautious approach towards closed-end funds. Eaton’s AUM was particularly affected by equity fund assets, which contracted 21% year over year to $52.9 billion. However, sequentially AUM recorded a growth of 13% primarily driven by the recent rally in stock markets.

Operating expenses, as a percentage of revenue, increased 660 basis points (bps) to 74.1%, compared to the year-ago quarter. This was mainly attributable to a 570 bps rise in compensation expenses on account of increased base salary and benefits, partially offset by lower incentives, distribution and service expenses. Accordingly, operating income fell nearly 36% year over year to $59.2 million, while operating margin slipped 660 bps to 25.9%.

The company ended the quarter with cash and equivalents of $333.2 million, compared to $380.5 million in the year-ago period. Eaton also stated that it has deployed $24.7 million towards share buyback and $71.6 million for payment of dividends over the past 12 months.

Boston-based Eaton Vance provides investment management and counseling services to high-net-worth individuals and institutions. The company offers a range of products and services designed and managed to generate risk-adjusted returns over the long term. The asset manager operates through 4 affiliates, Eaton Vance Management, Boston Management and Research, Eaton Vance Investment Counsel and Eaton Vance Trust Co. and 4 other subsidiaries.

Meanwhile, competitor Legg Mason (LM) posted fiscal first-quarter earnings of 35 cents per share last month, topping the Zacks Consensus Estimate by 66.7% amid a 4% sequential growth in AUM to $656.9 billion. Another rival, AllianceBernstein Holding (AB), also reported better-than-expected quarterly earnings of 41 cents per share, 7 cents ahead of the Zacks Consensus Estimate accompanied by nearly 9% sequential expansion in AUM to $447 billion.

The Zacks Consensus Estimate on Eaton’s earnings for the fiscal year ending Oct 2009 is currently pegged at $1.02 per share, which has moved up by 5 cents, or 5.2%, over the past month as 9 of 12 covering analysts raised projections. The most accurate estimate is slightly bullish at $1.03 per share.
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