Legg Mason Inc.
) fiscal third-quarter 2014 adjusted earnings came in at $1.03
per share, beating the Zacks Consensus Estimate by 3 cents.
Moreover, this came significantly above the year-ago figure of 70
cents per share.
Despite negative market sentiment, shares of Legg Mason gained
more than 1% in the pre-market session, indicating that investors
have been bullish on the results. The price reaction during the
trading session will give a better idea about whether Legg Mason
has been able to meet expectations.
Better-than-expected results were due to top-line growth.
Further, increased assets under management (AUM) were a positive.
However, upsurge in expenses reflected undisciplined expense
Adjusted net income came in at $124.6 million, compared with
$91.8 million in the prior-year quarter. Including one-time
items, Legg Mason reported net income of $81.7 million or 67
cents per share, compared with a net loss of $453.9 million or
$3.45 in the prior-year quarter.
Performance in Detail
Legg Mason's total revenue came in at $720.1 million, up 7% year
over year. The rise was due to an increase in average equity AUM
and higher performance fees. Moreover, revenues surpassed the
Zacks Consensus Estimate of $716.0 million.
Investment Advisory fees climbed 6.8% year over year to $629
million. Distribution and Service fees rose 6.3% to $88.3
million. Moreover, other revenues were up 50% year over year to
Operating expenses rose 4% to $598.4 million on a year-over-year
basis. Notably, the prior-year quarter excludes non-cash
impairment charge of $734.0 million. The rise was primarily due
to increased distribution and servicing related expenses along
with higher compensation and benefits.
Adjusted operating margin of Legg Mason was 24.1%, up from 20.4%
in the prior-year quarter.
As of Dec 31, 2013, Legg Mason's AUM was $679.5 billion, up 5%
year over year from $648.9 billion. Of the total AUM, fixed
income constituted 52%, liquidity 21% and equity 27%.
Equity outflows were $700 million, while fixed income and
liquidity inflows were $700 million and $9.9 billion,
respectively for the quarter ended Dec 31, 2013. Additionally,
average AUM was $670 billion, compared with $648.3 billion in the
As of Dec 31, 2013, Legg Mason had approximately $805 million in
cash, up from $712 million in the prior quarter, while total debt
was $1.1 billion, in line with the prior-quarter amount.
Shareholders' equity decreased to $4.7 billion from $4.8 billion
in the prior quarter.
The ratio of total debt to total capital (total equity plus total
debt excluding consolidated investment vehicles) was 19%, in line
with the prior quarter.
Capital Deployment Update
Concurrent with the earnings release, Legg Mason's board of
directors declared a quarterly cash dividend of 13 cents per
share. The dividend will be paid on Apr 14, 2014 to shareholders
of record as of Mar 13, 2014. Moreover, the company repurchased
2.3 million shares in the said quarter.
Among other investment managers,
Janus Capital Group Inc.
T. Rowe Price Group, Inc.
) December-quarter end earnings beat the Zacks Consensus
We believe Legg Mason has the potential to outperform its peers
in the long run, given its diversified product mix and leverage
in the changing market demography. However, asset outflows will
remain a significant headwind in the near term.
Nevertheless, with restructuring initiatives and cost-cutting
measures, we expect operating efficiencies to improve and
dividend payments to continue to boost investors' confidence in
the stock. Legg Mason currently carries a Zacks Rank #2
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