Commercial real estate services company Jones Lang LaSalle (JLL 2.23%) delivered another strong set of results in its second-quarter and one detail in its earnings and guidance helped allay some concerns over the North American commercial construction market.
Jones Lang LaSalle second-quarter results
For the fourth quarter in a row, the company easily beat analyst estimates. Second-quarter earnings per share came in at $2.01 , a full $0.16 ahead of what analysts had predicted.
As you can see in the chart below, the Americas region is by far the most important region for Jones Lang LaSalle. In fact Europe, Middle East and Africa, or EMEA, and Asia-Pacific combined only generated 27.6% of total adjusted Earnings Before Interest, Tax and Depreciation, or EBITDA, in the first-half of the year.
SOURCE: JONES LANG LASALLE PRESENTATIONS. ALL FIGURES IN THOUSANDS OF U.S. DOLLARS
However, Jones Lang LaSalle still got hit by the strength of the U.S. Dollar in the quarter. A look at its Real Estate Services, or RES, gross revenue in the quarter shows the impact of currency fluctuations. Total firm revenue increased 16% in the quarter on a constant currency basis, but increased just 8% in U.S. Dollars.
|
Gross Revenue ($millions) |
Year on Year Change in Local Currency |
Year on Year Change in U.S. Dollars | |
|---|---|---|---|
|
Americas Real Estate Services |
597.5 |
12% |
10% |
|
EMEA Real Esatate Services |
416.3 |
23% |
6% |
|
Asia-Pacific Real Estate Services |
279.6 |
14% |
5% |
|
Total Real Estate Services |
1293.4 |
16% |
7% |
SOURCE: JONES LANG LASALLE PRESENTATIONS
In short, while the U.S. is obviously critical to the company, foreign currency plays a role as well. With that said, currencies obviously move around independent of whatever management, or investors, can do. The key for the future profitability of the company is the state of the commercial real estate market, and on that front, there was good news in the report.
Gross absorption
Gross absorption refers to the percentage of total commercial real estate space leased during a specific period. If absorption is increasing, then leasing market activity is increasing and the company should see a boost in demand for its services.
I covered the company's previous set of results and it was notable at the time that gross absorption in the Americas actually declined 6% in the first-quarter even though management continued to predict a 0% to 5% rise for the full-year 2015. At the time, CEO Colin Dyer suggested it was "probably an anomaly".
Fortunately, gross absorption increased across all regions in the second quarter. The following table shows gross absorption across the first two quarters, then on a year-to-date basis, and then compared to the company's full-year forecast. As you can see, the Americas region is still negative year-to-date, but the second-quarter saw a 4% increase.
|
1Q'15 vs. 1Q'14 |
2Q'15 vs. 2Q'14 |
YTD '15 vs. YTD '14 |
FY'15 Forecast | |
|---|---|---|---|---|
|
Americas |
-6% |
4% |
-1% |
0%-5% |
|
EMEA |
-3% |
5% |
2% |
Flat |
|
Asia-Pacific |
5% |
41% |
25% |
15%-20% |
|
Total |
-4% |
8% |
3% |
0%-5% |
SOURCE: JONES LANG LASALLE PRESENTATIONS
The takeaway
All told, this was another strong report from Jones Lang LaSalle, and the gross absorption data points toward continued growth. Ultimately, it's hard to know how China's commercial real estate market will react to the sustained falls in its equity market, but for now Jones Lang LaSalle is seeing good growth prospects in all its markets—good news for investors in cyclical companies.
