Legg Mason Inc.
) fiscal fourth-quarter 2014 adjusted earnings came in at 86
cents per share, missing the Zacks Consensus Estimate by 3 cents.
However, this came significantly above the year-ago figure of 52
For fiscal 2014, Legg Mason's adjusted earnings per share of
$3.41 missed the Zacks Consensus Estimate by nearly 1%. However,
the reported figure exceeded the prior-year figure by 30.7%.
Shares of Legg Mason were down more than 3% in the beginning of
the trading session, indicating that investors may have been
bearish on the results. However, the price reaction during the
full trading session will give a better idea.
Results were primarily affected by other non-operating expense
compared with an income in the prior-year quarter. However,
improved topline, declining operating expenses, increased assets
under management (AUM) and overall net inflows were the positives
for the quarter.
Adjusted income came in at $103.5 million, compared with $66.7
million in the prior-year quarter. For fiscal 2014, it came in at
$122.9 million, up 20.3% year over year.
Including one-time items, Legg Mason reported net income of
$68.9 million or 58 cents per share for fiscal fourth-quarter,
compared with a net income of $29.2 million or 23 cents in the
prior-year quarter. For fiscal 2014, net income stood at $284.8
million or $2.33 per share, against a net loss $353.3 million or
$2.65 per share in fiscal 2013.
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Performance in Detail
Legg Mason's total operating revenue came in at $681.4 million,
up 2% year over year. The rise was due to an increase in average
equity AUM, partially offset by decline in performance fees.
However, revenues missed the Zacks Consensus Estimate of $689.0
For fiscal 2014, total operating revenue stood at $2.7 million,
up 5% year over year. Notably, the figure came in line with the
Zacks Consensus Estimate.
Investment Advisory fees climbed 1.7% year over year to $591.5
million. Distribution and Service fees rose 5.2% to $88.2
million. However, other revenues were down 17.8% year over year
to $1.7 million.
Operating expenses declined 10.0% to $562.1 million on a
year-over-year basis. The fall was primarily due to lower
occupancy costs and other operating expenses. Notably, the
reported quarter as well as the prior-year quarter included
certain non recurring items.
Adjusted operating margin of Legg Mason was 23.3%, up from 10.4%
in the prior-year quarter.
As of Mar 31, 2014, Legg Mason's AUM was $701.8 billion, up 5.6%
year over year from $664.6 billion. Of the total AUM, fixed
income constituted 52%, liquidity 21% and equity 27%.
Equity inflows and liquidity inflows were around $500 million and
$8.6 billion, respectively, while fixed income outflows were
around $800 million, for the quarter. Additionally, average AUM
was $689.0 billion, compared with $657.4 billion in the
As of Mar 31, 2014, Legg Mason had $858 million in cash, up from
$805 million in the prior quarter. Total debt was $1.0 billion,
compared with $1.1 billion in the prior-quarter, while
shareholders' equity stood at $4.7 billion, in line with the
The ratio of total debt to total capital (total equity plus total
debt excluding consolidated investment vehicles) decreased to
18%, from 19% in the prior quarter.
Capital Deployment Update
The company repurchased 2.0 million shares in the said quarter.
Notably, on Apr 29, Legg Mason's board of directors declared a
23.1% hike in its quarterly cash dividend to 16 cents per share.
The new dividend will be paid on Jul 14 to shareholders of record
as of Jun 17.
Though Legg Mason missed estimate in the final quarter of fiscal
2014, we remain optimistic owing to its improved
fundamentals. 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.
Further, with restructuring initiatives and cost-cutting
measures, we expect operating efficiencies to improve and
dividend payments to continue to boost investor confidence in the
stock. Legg Mason currently carries a Zacks Rank #3 (Hold).
Performance of Other Investment Management Firms
Among other asset managers,
Franklin Resources Inc.
) March-quarter results missed the Zacks Consensus Estimate,
Affiliated Managers Group Inc.
Ameriprise Financial, Inc.
) outpaced the Zacks Consensus Estimate.