Legg Mason Inc.
) fiscal second-quarter 2014 adjusted earnings came in at 85
cents per share, missing the Zacks Consensus Estimate by 8 cents.
However, this came above the year-ago figure of 75 cents per
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Lower-than-expected results were due to higher operating
expenses. However, top-line growth, aided primarily by an
increase in both investment advisory fees and other revenues was
a tailwind. Further, increased assets under management (AUM) were
Adjusted net income came in at $104.5 million, compared with
$10.1 million in the prior-year quarter. Including one-time
items, Legg Mason reported net income of $86.3 million or 70
cents per share, compared with $80.8 million or 60 cents in the
Performance in Detail
Legg Mason's total revenue came in at $669.9 million, up 5% 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 $656.0 million.
Investment Advisory fees climbed 4.5% year over year to $581.6
million. Distribution and Service fees rose 5.3% to $86.2
million. Moreover, other revenues were up 11.9% year over year to
Operating expenses inched up 0.5% to $563.5 million on a
year-over-year basis. The rise was primarily due to increased
distribution and servicing related expenses along with higher
revenue share compensation mainly related to higher revenues.
Adjusted operating margin of Legg Mason was 22.3%, up from 21.9%
in the prior-year quarter.
As of Sep 30, 2013, Legg Mason's AUM was $656.0 billion, up 1%
year over year from $650.7 billion. Of the total AUM, fixed
income constituted 54%, liquidity 20% and equity 26%.
Equity outflows were $4.0 billion, while fixed income and
liquidity inflows were $0.3 billion and $2.3 billion,
respectively for the quarter ended Sep 30, 2013. Additionally,
average AUM was $650.4 billion, compared with $639.4 billion in
the prior-year quarter.
As of Sep 30, 2013, Legg Mason had approximately $712 million in
cash, in line with the prior quarter, while total debt was $1.1
billion, in line with the prior-quarter amount. Shareholders'
equity increased to $4.8 billion from $4.7 billion in the prior
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 Jan 6, 2014 to shareholders
of record as of Dec 11, 2013. Moreover, the company repurchased
2.7 million shares in the said quarter.
Among other investment managers,
Janus Capital Group Inc.
) September-quarter end earnings were in line with the Zacks
Consensus Estimate, while results at
T. Rowe Price Group, Inc.
) beat the Zacks Consensus Estimate.
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 boosting investors' confidence in
the stock. Legg Mason currently carries a Zacks Rank #3