This summary is based on the first quarter fiscal 2007 earnings call conducted by Merrill Lynch & Co., Inc. (MER: chart) on April 19, 2007.
Management:
Chief Financial Officer, Senior Vice President: Jeffrey N. Edwards
Investor Relations: Jonathan Blum
Key Investors Issues
- Net earnings per share of $2.26 were up 37% year over year and down 6% sequentially.
- Net income was $2.2 billion were up 31% from a year ago.
- Net revenues were $9.9 billion, up 24% from the prior-year period.
First Quarter Highlights
Net revenues were $9.9 billion, up 24% from the prior-year period, and 14% from the 2006 fourth quarter.
Excluding MLIM and BlackRock, the year-on-year revenue growth in remaining businesses would have been even stronger, over 30%.
In addition to the strong growth in revenues, the company improved operating leverage, as the pre-tax leverage increased to 31.4% up from 29.5% in last year’s first quarter, reflecting both the growth in diversified sources of revenue and a continued focus on expense management.
Net earnings per share of $2.26 were up 37% year over year and down 6% sequentially, while net earnings of $2.2 billion were up 31% and down 8% respectively as ongoing stock repurchases continue to enable EPS growth to surpass earnings growth.
Annualized return on common equity of 23.3% increased by more than 4 points from the first quarter of 2006 as the company continues to focus on this measure of operating efficiency.
From a regional perspective, in the U.S. the company grew revenues at double-digit rates both sequentially and year over year, but growth outside the U.S. continued to be faster, at a rate more than 10 percentage points higher than in the U.S.
Non-U.S. net revenues comprised 39% of Merrill Lynch’s total net revenues and 54% of net revenues in Global Markets & Investment Banking, or GMI. The company continues to believe that the profit pools in international markets will grow faster than those in the U.S. for the foreseeable future, and therefore it continues to make investments necessary to build out platforms broadly in these markets, complementing strong presence in the U.S.
In GMI and Global Wealth Management, the company continues to successful strategy to broaden and deepen platform.
The benefits of this diversification become especially evident in quarters such as this one, where a clear dislocation in an individual market, the subprime mortgage space in the U.S., did not impede the overall momentum of franchise.
- The company announced the acquisition of First Republic Bank which is on track for a third quarter closing.
- The company opened new institutional offices in Turkey, Russia and Dubai.
- The key long-term drivers of strategy are economic growth, wealth creation and globalization remain in place and continue to give rise to substantial opportunities to grow and diversify revenues further.
GMI turned in another record-setting performance as momentum accelerated across its expanding global portfolio of businesses, and investments for growth continue to pay off.
- Net revenues of $6.5 billion were 22% higher than the 2006 fourth quarter and an even stronger 43% higher than the 2006 first quarter.
- Pretax earnings were $2.3 billion, up 48% from the prior-year period on the strength of both the higher revenues and good operating leverage driving the pretax margin to 35.8%. Sequentially, pretax earnings were down 10% as the compensation ratio rose from the unusually low fourth quarter.
Net revenues in FIC were $2.8 billion, up 22% from the fourth quarter of 2006 and 36% from last year’s first quarter.
The sequential increase was reflective of enhanced positioning in a highly diversified set of asset classes including record revenues from credit, commercial real estate, rates and currencies businesses which substantially more than offset the impact of revenue declines for mortgages and commodities. Compared with the first quarter of 2006, all major product lines with the exception of mortgages reported higher revenues.
