Riding on higher revenues,
Legg Mason Inc.
) fiscal first-quarter 2015 adjusted earnings came in at 91 cents
per share, beating the Zacks Consensus Estimate by 5 cents.
Earnings were significantly higher than the year-ago figure of 68
cents per share.
Better-than-expected results were due to top-line growth and
decreased operating expenses. Further, increased assets under
management (AUM) were a positive. However, net outflows remain a
Adjusted net income came in at $107.2 million, compared with $85.2
million in the prior-year quarter. Including one-time items, Legg
Mason reported net income of $72.2 million or 61 cents per share,
compared with $47.8 million or 38 cents in the prior-year quarter.
Recently, Legg Mason announced the acquisition of UK-based
international equity specialist firm Martin Currie. Financial terms
of the deal were not disclosed. At the close of the transaction,
which is expected in the fourth quarter of calendar year 2014,
Martin Currie, with AUM worth $9.8 billion as of Jun 30, 2014, will
serve as a core independent investment partner of Legg Mason. Other
existing affiliates include Brandywine Global, ClearBridge
Investments, The Permal Group, QS Investors, Royce & Associates
and Western Asset Management.
Legg Mason Inc - Earnings Surprise |
Performance in Detail
Legg Mason's total revenue came in at $693.9 million, up 4% year
over year. The rise was due to an increase in average long-term
AUM, partly offset by lower performance fees. However, revenues
lagged the Zacks Consensus Estimate of $714.0 million.
Investment Advisory fees climbed 6.1% year over year to $619
million. Distribution and Service fees rose 5.7% to $89.7 million.
Yet, other revenues decreased 25% year over year to $1.5 million.
Operating expenses fell 2.1% to $574.3 million on a year-over-year
basis. The decline was primarily due to decreased distribution and
servicing related expenses, partially offset by higher compensation
Adjusted operating margin of Legg Mason was 22.9%, up from 17.9% in
the prior-year quarter.
As of Jun 30, 2014, Legg Mason's AUM was $704.3 billion, up 9% year
over year from $644.5 billion. AUM rose slightly on a sequential
basis from $701.8 billion as of Mar 31, 2014.
The upsurge was driven by an $18.5 billion increase in market
performance, foreign exchange and other, increase in AUM related to
the QS Investors acquisition worth $5.0 billion along with
long-term inflows of $0.7 billion. These were partially offset by
$8.9 billion in liquidity outflows along with a $12.8 billion
reclassification of certain client assets previously reported as
AUM to Assets Under Advisement (AUA).
Of the total AUM, fixed income constituted 52%, liquidity 20% and
equity 28%. Equity and liquidity outflows were $1.8 billion and
$8.9 billion, respectively, while fixed income inflows were $2.5
billion for the quarter ended Jun 30, 2014.
As of Jun 30, 2014, Legg Mason had approximately $1.3 billion in
cash, up from $858 million in the prior quarter, while total debt
was $1.7 billion, up from $1.1 billion in the prior-quarter.
Shareholders' equity was $4.7 billion, in line with the prior
The ratio of total debt to total capital (total equity plus total
debt excluding consolidated investment vehicles) was 27%, up from
18% in the prior quarter.
Capital Deployment Update
Concurrent with the earnings release, Legg Mason's board of
directors declared a quarterly cash dividend of 16 cents per share.
The dividend will be paid on Oct 27, 2014 to shareholders of record
as of Oct 9, 2014. Moreover, the company repurchased 1.9 million
shares in the said quarter.
Aided by higher revenues, Janus Capital Group Inc. (
) reported second-quarter 2014 earnings per share attributable to
common shareholders of 19 cents, inching past the Zacks Consensus
Estimate by a penny. Moreover, results compared favorably with the
prior-year quarter adjusted earnings of 12 cents.
Better-than-expected results reflected top-line growth and
increased AUM, depicting stability in earnings.
Federated Investors Inc. (
) reported second-quarter 2014 earnings per share of 35 cents, in
line with the Zacks Consensus Estimate. Further, this compared
unfavorably with the prior-year quarter earnings of 39 cents.
Decrease in expenses and record higher equity assets acted as the
tailwinds for the quarter. However, lower top-line performance and
decline in AUM were on the downside.
Franklin Resources Inc.'s (
) fiscal third-quarter 2014 (ended Jun 30) earnings of 92 cents per
share missed the Zacks Consensus Estimate by 4 cents. However,
results compared favorably with the prior-year quarter earnings of
86 cents per share. Rise in expenses remained a concern. However,
net inflows, top-line growth and a strong capital position were the
tailwinds for the quarter.
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, recent acquisitions
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
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