Baltimore-based Legg Mason Inc. (LM) experienced a decline in its assets under management (AUM) in May on a sequential basis. This was preceded by a slight decline in April, but a modest increase in March AUM.
Preliminary month-end AUM came in at $671.0 billion, down 0.1% from $672.0 billion at the end of April. Fixed income and liquidity AUM grew sequentially during the month, while equity AUM plummeted.
Legg Mason’s equity AUM in April inched down 2.0% from the prior month to $187.4 billion while fixed income AUM increased 0.1% from the prior month to $365.3 billion. The decrease in equity and decline in fixed income AUM primarily resulted in a 0.6% descend in long-term AUM to $552.7 billion from $556.2 billion at the end of the prior month. On the other hand, liquid assets, which are convertible into cash, edged up 2.1% to $118.2 billion from $115.8 billion at the end of April 2011.
On a quarterly basis, Legg Mason’s AUM was $677.6 billion as of March 31, 2011, up 0.9% sequentially from $671.8 billion, driven by market appreciation, partly offset by net outflows of $8.7 billion. On a year-over-year basis, AUM was down 1.0% from $684.5 billion. Fixed income represented 53% of consolidated AUM as of March 31, 2011, liquidity consisted of 19% and equity comprised 28%.
Average AUM was $673.5 billion, up 0.2% from $672.4 billion in the prior quarter, but inched down 1.1% from $681.2 billion in the year-ago quarter. For fiscal year 2011, average AUM was $669.3 billion compared with $675.5 billion in the prior year.
Earnings Recap
Earlier in May, Legg Mason reported fourth-quarter 2011 earnings of 77 cents per share, significantly outpacing the Zacks Consensus Estimate of 45 cents. Results for the reported quarter included 7 cents per share in transition-related costs. Earnings surpassed the prior-year quarter by 8 cents. The improvement in results was mainly attributable to higher revenue, offset by higher operating expenses coupled with a decline in total AUM.
Peer Performance
Legg Mason’s closest competitor Invesco Ltd. (IVZ) reported preliminary AUM of $661.4 billion at the end of May 2011, marking a decrease of 1.1% from $668.6 billion at the end of April 2011. The AUM decline was mainly attributable to net outflows principally in the PowerShares QQQ exchange traded funds (ETFs), negative foreign exchange and negative market returns. Invesco’s preliminary AUM, excluding ETFs, Unit Investment Trust (UIT), and passive funds, stood at $568.0 billion at the end of May 2011, down 0.6% from $571.4 billion in the prior month.
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 demographics in the market. However, in the near term, assets outflows remain a significant headwind. Yet, with the restructuring initiatives and the cost-cutting measures, we expect operating leverage to improve, and share buybacks to continue boosting investors confidence on the stock.
Legg Mason currently retains its Zacks #3 Rank, which translates to a short-term Hold rating. Considering the fundamentals, we have a long-term Neutral recommendation on the stock.
(We are reissuing this article to correct a mistake. The original article, issued earlier today, should no longer be relied upon.)
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