Jefferies Beats Estimates as Trading Revenue Increases

Jefferies Group Inc. (JEF) climbed in New York trading after reporting fiscal second-quarter profit that beat analysts’ estimates as fixed-income trading revenue rose 31 percent from a year earlier.

Jefferies advanced 2.5 percent to $13.44 at 10:13 a.m., after reaching $13.84 earlier today, the biggest gain in three months. Revenue from fixed-income trading jumped to $292.6 million from $223.1 million a year earlier.

“Our team has really established solid niches with our clients, and we’re gaining a reasonable market share” in fixed- income trading, Jefferies Chief Executive Officer Richard Handler, 51, said on a conference call.

Analysts had been lowering their estimates in recent weeks amid a decline in fixed-income and equity markets and heightened concern that Europe’s debt crisis would spread. Revenue from trading fell 16 percent from the first quarter.

Net income for the three months ended May 31 dropped 21 percent to $63.5 million, or 28 cents a share, from $80.6 million, or 36 cents, a year earlier, the New York-based firm said in a statement. That beat the average estimate of 27 cents in a Bloomberg survey of eight analysts.

Investment-banking revenue declined 9.6 percent from a year earlier to $297 million as advisory revenue fell to $108.9 million from $144.6 million. Capital markets revenue climbed to $188.1 million from $183.8 million.

“Both product-wise and geographically, we think we now have a substantial portion of the long-term architecture of our firm,” Brian Friedman, chairman of the firm’s executive committee, said today on the call. “Our emphasis is in going deeper, growing our market share.”

Shareholders’ Reward

Jefferies set aside $423.5 million for compensation expenses in the fiscal second quarter, 1.9 percent less than a year earlier. Total non-interest expenses rose to $600 million from $592.3 million.

“Jefferies is one of the few companies in our coverage that is proactively using this protracted downturn to grow the breadth and depth of its businesses,” Chris Kotowski, an analyst at Oppenheimer & Co. in New York, said in a June 14 note. “We believe that shareholders will ultimately be rewarded.”

The firm’s shares slid 4.7 percent this year through yesterday, compared with a 6.9 percent gain in the Standard & Poor’s 500 Index.

To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net.

To contact the editor responsible for this story: Rick Green at rgreen18@bloomberg.net

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