JLL Earnings: Valuation Declines and Lower Transaction Volume Hurt Profitability

Narrow-moat-rated Jones Lang LaSalle’s second-quarter results were disappointing, as valuation declines in JLL Technologies’ investment portfolio and significant declines in global transaction volume affected profitability. The company reported that global investment sales were down 53% during the second quarter, with the Americas down 59%; Europe, Middle East, and Africa down 57%; and Asia-Pacific down 11%. Global office leasing volumes were also down 14% in the second quarter compared with the second quarter of 2022. In the industrial sector, gross leasing volumes in U.S. and EMEA were down significantly year over year and also below the five-year historical average. Industrial net absorption in the Asia-Pacific region remained strong and was considerably above the five-year historical average. We think that the pressure on the brokerage business will continue in the near term given our macroeconomic outlook and rising interest rates.

The company reported adjusted net income of $24 million, or $0.50 per share, in the second quarter, down 89% compared with the $222 million, or $4.48 per share, reported in the second quarter of the previous year. Companywide fee revenue was down 13% in the current quarter compared with the previous year as it was reported at $1.85 billion. Adjusted EBITDA came in at a disappointing $116 million, 68% lower compared with the second quarter of 2023. This resulted in an adjusted EBITDA margin of 6.2% for the quarter, down 1,060 basis points compared with the second quarter of last year. The margin compression in the current quarter can be attributed to equity losses caused by valuation declines, significantly lower brokerage volumes, and the inherent operating leverage in the business model of the company. The nonrecurring charge in equity earnings accounted for over 70% of the margin reduction during the quarter. We are reducing our fair value estimate for JLL to $203 per share from $205.