LPL has solid second quarter but recruiting still sluggish

LPL Financial LLC today reported a second consecutive quarter of weak recruiting even as its overall financial results for the period topped expectations. The firm has long been a recruiting juggernaut, with a longstanding goal of 400 to 500 net new advisers per year. This year, however, recruiting has been tepid. The firm recruited 32 net new advisers in the quarter ended June 30, after recruiting two dozen in the first quarter. LPL Financial, with more than 13,000 affiliated independent advisers and reps, reported a little more than $1 billion in net revenue for the three-month period, an increase of 12.2% over the same period in 2012. Net income also increased, reaching more than $45 million, up 14.1% from the second quarter of last year. The company posted earnings per share of 61 cents, a penny more than the Wall Street consensus. For the same period of last year, earnings per share were 49 cents. At this time last year, LPL’s earnings were struggling as investors were still spooked by the stock market swoon of 2008 and the company was digesting the cost of recent acquisitions. The results from the second quarter represented a turnaround, said LPL chief financial officer Dan Arnold, in an interview. “If you look at the quarter, it’s the classic quarter we would expect from financial performance,” he said. LPL’s double-digit growth in revenue in the low teens should lead to earnings before interest, depreciation and amortization growth in high teens, he said. Additional earnings growth should come from LPL’s share repurchase program of five million shares over the course of the year, he said. The company's second quarter results were driven by improving business fundamentals, which included increased productivity per adviser, rising asset levels and strong retention of existing advisers, chief executive Mark Casady said. In a conference call with analysts, Mr. Casady said the securities industry is experiencing “muted” levels of recruiting. Recruiting and adviser movement overall is half the level of last year, he said. “We're going to reflect that,” he said, adding that the firm was still among the leaders in recruiting and that he was optimistic about recruiting prospects in the future. “There are lots of advisers who are interested in moving,” he said. “Our leads are up 8.5% year-over-year.” “Adviser growth remained fairly slow, as expected,” Alex Kramm, an analyst with UBS Securities LLC, wrote in an earnings note this morning. The firm's decision to raise its quarterly dividend by 5 cents to 19 cents per share, along with the fact that its earnings per share beat the Street's consensus, “should bode well for the shares today,” he wrote. LPL's shares were up 90 cents, or 2.45%, to 37.88 in early trading.