Legg Mason Inc. (LM) reported fiscal third-quarter 2015 adjusted earnings of 98 cents per share, slivering past the Zacks Consensus Estimate by a penny. However, the figure compared unfavorably with the year-ago figure of $1.03 per share.
Results were aided by higher distribution and service fees. Moreover, sustainable rise in assets under management (AUM) remained impressive. However, pressurized top line and weak expense management were the downsides.
Adjusted income came in at $113.1 million, down 9% year over year.
After considering certain non-recurring items, net income stood at $77.0 million, or 67 cents per share, compared with $81.7 million, or 67 cents per share in the prior-year quarter.
Quarter in Detail
Legg Mason’s total revenue amounted to $719.0 million, relatively flat year over year. Higher advisory fee revenues driven by an increase in average long-term AUM was offset by lower performance fees. The current quarter comprised incremental revenues associated with the addition of a full quarter of Martin Currie revenues, reduced by the loss of a partial quarter of LMIC revenues.
Further, revenues lagged the Zacks Consensus Estimate of $722 million.
Investment advisory fees came in to $627.9 million relatively flat with the year-ago quarter figure, while Distribution and Service fees rose 2% to $90.1 million. However, other revenues dipped 62% year over year to $1.0 million.
Operating expenses increased marginally to $599.6 million on a year-over-year basis. The current quarter included costs related to the QS Investors integration and costs related to the sale of LMIC and the acquisition of Martin Currie.
Adjusted operating margin stood at 21.4%, down from 24.1% in the prior-year quarter.
Assets Under Management
As of Dec 31, 2014, Legg Mason’s AUM was $709.1 billion, up 4% year over year.
AUM rose slightly on a sequential basis from $707.8 billion as of Sep 30, 2014, driven by long-term net inflows of $8.8 billion and $3.1 billion in positive market performance. These were partially offset by liquidity outflows of $10.6 billion.
Of the total AUM, fixed income constituted 52%, liquidity 20% and equity 28%. The quarter experienced equity outflows of $1.1 billion and fixed income inflows were $9.9 billion.
Balance Sheet
As of Dec 31, 2014, Legg Mason had approximately $665 million in cash, up from $659 million in the prior quarter, while total debt was $1.1 billion at par with the prior-quarter number. Shareholders’ equity was $4.5 billion, compared with $4.6 billion in the prior quarter.
The ratio of total debt to total capital (total equity plus total debt excluding consolidated investment vehicles) was 19%, stable with the prior quarter.
Capital Deployment Update
Legg Mason’s board of directors approved a new share repurchase authorization for up to $1 billion of common stock. Also, the company declared a quarterly cash dividend of 16 cents per share. The dividend will be paid on Apr 13, 2015 to shareholders of record as of Mar 12, 2015.
Our Viewpoint
Legg Mason looks ahead to reinforce its global investment products portfolio through several acquisitions it has undertaken. We believe that the company has the potential to outperform its peers in the long run, given its diversified product mix and leverage to the changing market demography.
However, a persistent low interest rate environment, regulatory headwinds along with a volatile economy keeps us apprehensive.
Legg Mason currently carries a Zacks Rank #3 (Hold).
Performance of Other Asset Managers
Among other investment management firms, BlackRock, Inc. (BLK) reported fourth-quarter adjusted earnings of $4.82 per share, surpassing the Zacks Consensus Estimate of $4.68, on the back of robust inflows.
T. Rowe Price Group, Inc.’s (TROW) fourth-quarter 2014 earnings of $1.18 per share beat the Zacks Consensus Estimate by 5 cents, driven by improved revenue growth.
Janus Capital Group, Inc. (JNS) reported fourth-quarter earnings per share attributable to common shareholders of 24 cents, beating the Zacks Consensus Estimate by 4 cents. Results reflected top-line growth and increased AUM aided by net inflows.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment