This summary is based on the second quarter fiscal 2007 earnings call conducted by Merrill Lynch & Co. (MER) on July 17, 2007.
Chairman and Chief Executive Officer: Stan O''Neal
Chief Financial Officer: Jeff Edwards
Director, Investor Relations: Jonathan Blum
Key Investor Issues
- Earnings per share was $2.24, a 37% increase from $1.63 a year earlier.
- Net earnings were $2.1 billion, up 31% from a year earlier and down 1% from the first quarter.
- Total net revenues were $9.7 billion, up 19% from $8.2 billion a year earlier.
Second Quarter Financial Highlights
The company reported record revenues for the quarter at $9.7 billion, a 19% increase from a year earlier and just 1% below the first quarter.
Considering the ongoing businesses and excluding the results from MLIM in 2006 and BlackRock in 2007, the revenues were up more than 27%, despite lower revenues from the private equity business, which contributed significantly less than in recent quarters; and in spite of persistently challenging conditions in the U.S. sub-prime mortgage market.
- The quarter’s pre-tax profit margin was 31.1%, up 2.4 points from prior-year quarter.
Net earnings for the quarter were $2.1 billion, a 31% increase from a year earlier, with earnings per diluted share of $2.24, up 37% from the year ago period.
The share repurchase program continues to boost the faster growth of EPS compared to net earnings.
The company continued making progress in the Middle East, including obtaining a full banking license in Saudi Arabia.
- It also joined the Dubai Mercantile Exchange, and became the first ever international institution to lead a sale on the Kuwaiti Stock Exchange and led the first-ever international traunch of a Korean domestic IPO.
- In Europe, the company ranked #1 in completed Mergers & Acquisitions, and advised on four of the top five deals announced during the quarter.
Compensation and benefits expenses were $4.8 billion or 48.9% of net revenues for the quarter, compared to 48.7% in the prior year.
The compensation and benefits expenses were $9.6 billion, or 49.3% of net revenues for the first half, down from 49.4% in the year earlier half.
Non-compensation expenses were $1.9 billion for the quarter or 20% of the quarter’s net revenues, down from 22.6% in the prior year.
- Communication and technology costs were $484 million, up 13%, due primarily to costs related to technology investments for growth.
- Brokerage, clearing and exchange fees were $346 million, up 30%, due primarily to higher transaction volumes.
- Occupancy costs and related depreciation were $277 million, up 11%, due principally to higher office rental expenses and office space added via acquisitions.
- Professional fees were $245 million, an increase of 25%, due to higher employment service fees and other professional fees.
- Expenses of consolidated investments totaled $43 million, down from $145 million, due primarily to decreased expenses associated with the related decrease in revenues from consolidated investments.
The company repurchased 19.8 million shares of its common stock for $1.8 billion during the quarter, completing the $5 billion repurchase program authorized in October 2006 and utilizing $557 million of the $6 billion repurchase program authorized in April 2007.
Repurchases have had a material effect on the share count. The average diluted shares for the quarter were 923 million, down 5% from this time a year ago, while period end shares are down 4%.
The quarter’s ROE was 22.4%, up 3.8 points from a year ago and down less than a point from the first quarter.
- The book value per share was $43.55, up 3% sequentially and a full 17% year on year.
- The company’s full-time employees totaled 61,900 at the end of the second quarter, a net increase of 1,600 during the quarter.
- The effective tax rate was 29.2% in the quarter, compared with 30.5% a year earlier.
