Legg Mason Inc.
) fiscal third quarter 2013 adjusted earnings of 70 cents per
share significantly outpaced the Zacks Consensus Estimate by 16
cents. Moreover, earnings were well above the prior-year quarter
figure of 55 cents per share.
Better-than-expected results reflected higher top-line growth,
aided primarily by improved investment advisory fees and other
revenues. However, net client outflows in the quarter were a
negative. Elevated operating expenses also acted as a dampener.
Adjusted net income came in at $91.8 million compared with $76.8
million in the prior-year quarter. Including one-time items, Legg
Mason reported net loss of $453.9 million or $3.45 per share.
Performance in Detail
Legg Mason's total revenue was $673.9 million, up 7.5% year over
year, driven by higher performance fees. Moreover, revenues were
slightly above the Zacks Consensus Estimate of $673.0 million.
Investment Advisory fees climbed 8.0% year over year to $589.0
million. Distribution and Service fees elevated 3.0% to $83.1
million. Moreover, other revenues were up 80.0% year over year to
Operating expenses more than doubled to $1.3 billion on a
year-over-year basis. The substantial increase was primarily
driven by $734.0 million in non-cash impairment charges relating
to intangible assets. Adjusted operating margin of Legg Mason
declined to 19.8% in the quarter under review from 21.7% in the
As of Dec 31, 2012, Legg Mason's AUM was $648.9 billion, up 3.0%
year over year from $627.0 billion, driven by market appreciation
of $5.7 billion. Fixed income represented 57% of
consolidated AUM as of Dec 31, 2012, liquidity represented 21%
and equity comprised 22%.
During the quarter, liquidity inflows were about $7.6 billion.
However, equity and fixed income outflows were $8.3 billion and
$6.8 billion, respectively. Besides, average AUM was $648.3
billion compared with $622.0 billion in the prior-year quarter.
As of Dec 31, 2012, Legg Mason had approximately $0.9 billion in
cash, in line with the prior quarter, while total debt reduced to
$1.1 billion from $1.2 billion. Shareholders' equity also
decreased to $4.9 billion from $5.5 billion in the prior quarter.
The ratio of total debt to total capital (total equity plus total
debt excluding consolidated investment vehicles) was 19%, up from
17% in the previous quarter.
Capital Deployment Update
During the quarter, Legg Mason repurchased 2.8 million shares.
Moreover, Legg Mason's board declared a quarterly cash dividend
of 11 cents per share. The dividend will be paid on Apr 15, 2013
to shareholders of record as of Mar 14, 2013.
We believe Legg Mason has the potential to outperform its peers
in the long run, given its diversified product mix and leverage
to the changing market demography. However, in the near term,
assets outflows will remain a significant headwind. Yet, with the
restructuring initiatives and the cost-cutting measures, we
expect operating efficiencies to improve, and dividend payments
to continue to inspire investors' confidence in the stock.
Shares of Legg Mason currently carry a Zacks Rank #3 (Hold).
Virtus Investment Partners, Inc.
) carries a Zacks Rank #1 (Strong Buy), while
) carry Zacks Rank #2 (Buy).
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