Legg Mason Inc.
) fiscal fourth-quarter 2012 earnings of 88 cents per share
significantly outpaced the Zacks Consensus Estimate of 48 cents.
Moreover, earnings were well above the prior quarter's earnings of
55 cents per share.
The upbeat performance was attributed to higher revenues aided
by rising investment advisory, distribution and services fees,
partially offset by increased operating expenses. Improved assets
under management (AUM) were also a positive factor for the
Adjusted net income came in at $123.6 million, compared
with $76.8 million in the prior quarter. Including one-time
expenses, net income came in at $76.1 million or 54 cents per
Performance in Detail
During the reported quarter, Legg Mason's total revenue was
$648.6 million, up 3.4% sequentially, spurred by increased average
AUM, including a more favorable average asset mix and higher
performance fees. Moreover, revenues were also above the Zacks
Consensus Estimate of $644.0 million.
In fiscal 2012, total revenue was $2.7 billion, down 3.6% year
over year. The decline in revenues reflected fall in average AUM
along with reduced performance fees. Further, revenues were in line
with the Zacks Consensus Estimate.
Investment Advisory fees increased 3.6% sequentially to $564.7
million in the quarter. Distribution and Service fees surged 2.1%
sequentially to $82.4 million. Other revenues were up 50.0%
sequentially to $1.5 million.
Operating expenses increased 1.5% sequentially to $576.4 million,
attributed to rise in compensation and benefits, partly offset by
other non-operating income. Adjusted operating margin of Legg Mason
declined to 21.2% in the quarter from 21.7% in the prior
As of March 31, 2012, Legg Mason's AUM was $643.3 billion, up
2.6% sequentially from $627.0 billion, driven by market
appreciation of $24.4 billion, partially offset by net client
outflows of $4.9 billion and dispositions of $3.2 billion. Fixed
income represented 55% of consolidated AUM as of March 31, 2012,
liquidity represented 19% and equity comprised 26%.
During the quarter, fixed income outflows were approximately $2.8
billion and equity outflows were $4.9 billion. However, liquidity
inflows were $2.8 billion. Average AUM was $634.9 billion, up 2.1%
from $622.0 billion in the prior quarter.
As of March 31, 2012, Legg Mason had approximately $1.4 billion
in cash compared with $1.2 billion in the prior quarter, while
total debt was stable at $1.4 billion, in line with the prior
quarter. Shareholders' equity was $5.7 billion, up from $5.6
billion in the previous quarter. The ratio of total debt to total
capital (total equity plus total debt excluding consolidated
investment vehicles) was 20%, stable compared with the previous
Capital Deployment Update
Legg Mason ended its streamlining plan in fiscal 2012. The plan
generated more than $140 million in annual cost savings, and
deployed over $440 million to shareholders through share
repurchases and dividends.
Moreover, Legg Mason's board declared an increased quarterly
cash dividend of 11 cents per share from 8 cents on its common
stock. The hike reflects 37.5% increase in the rate of dividend.
The dividend will be paid on July 9, 2012 to shareholders of record
as of June 12, 2012.
In Legg Mason's peer group,
T. Rowe Price Group Inc.
) first-quarter 2012 net income of 75 cents per share were
marginally below the Zacks Consensus Estimate of 77 cents. However,
this compares favorably with the prior-year quarter's earnings of
Better-than-expected top-line growth was more-than-offset by
higher non-interest expenses. However, increased assets under
management (AUM) were positive 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 to
the changing market demography. In the near term, though, 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.
Legg Mason currently retains its Zacks #3 Rank, which translates
to a short-term Hold rating. Considering the fundamentals, we also
maintain a Neutral recommendation on the stock.
LEGG MASON INC (
): Free Stock Analysis Report
T ROWE PRICE (
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