Driven by higher advisory revenues, Legg Mason Inc. LM delivered positive earnings surprise of 4% in fourth-quarter fiscal 2015 (ended Mar 31). Adjusted earnings of $1.03 per share outpaced the Zacks Consensus Estimate of 99 cents. Also, the reported figure came above the year-ago adjusted earnings of 86 cents per share.
For fiscal 2015, Legg Mason’s adjusted earnings per share of $3.26 also beat the Zacks Consensus Estimate of $3.21. However, the reported figure compared unfavorably with prior-year earnings of $3.41 per share.
Results were primarily aided by improved top line, partially offset by higher expenses. Also, increased assets under management (AUM) reflecting long-term net inflows and positive market performance were the tailwinds.
Adjusted income came in at $117.9 million, compared with $103.5 million in the prior-year quarter. For fiscal 2015, it came in at $378.8 million, down 9.3% year over year.
Including one-time items, Legg Mason reported net income of $83.0 million or 73 cents per share for fiscal fourth-quarter, compared with a net income of $68.9 million or 58 cents in the prior-year quarter. For fiscal 2015, net income stood at $237.1 million or $2.04 per share, against $284.8 million or $2.33 per share in fiscal 2014.
Performance in Detail
Legg Mason’s total operating revenue came in at $702.3 million, up 3.1% year over year. The rise was due to higher investment advisory fees that came on the back of increased performance fees and higher fees from separate accounts and funds. Also, revenues came in ahead of the Zacks Consensus Estimate of $701million.
For fiscal 2015, total operating revenue stood at $2.8 billion, up 2.8% year over year. Notably, the figure came in line with the Zacks Consensus Estimate.
Investment advisory fees climbed 3.7% year over year to $613.7 million in the quarter. Also, other revenues were up 6.2% year over year to $1.8 million. However, distribution and service fees declined 1.5% year over year to $86.9 million.
Operating expenses increased 2% to $573.4 million on a year-over-year basis. The rise was primarily due to higher cost related to compensation and benefits and communications and technology. Notably, the reported quarter as well as the prior-year quarter included certain non-recurring items.
Adjusted operating margin of Legg Mason was 23.8%, up from 23.3% in the prior-year quarter.
Assets Position
As of Mar 31, 2015, Legg Mason’s AUM was $702.7 billion, slightly up year over year from $701.8 billion. Of the total AUM, fixed income constituted 54%, equity 28% and liquidity 18%. Equity outflows and liquidity outflows were around $1.4 billion and $15.3 billion, respectively, while fixed income inflows were around $7.6 billion, for the quarter. Additionally, average AUM was $707.1 billion, compared with $689.0 billion in the prior-year quarter.
Balance Sheet
As of Mar 31, 2015, Legg Mason had $670 million in cash, up from $665 million in the prior quarter. Total debt was $1.1 billion, in line with the prior quarter. Shareholders’ equity was $4.5 billion, also at par with the prior quarter.
The ratio of total debt to total capital (total equity plus total debt excluding consolidated investment vehicles) increased to 19%, from 18% in the prior quarter.
Capital Deployment Update
The company repurchased 1.6 million shares in the reported quarter. Notably, Legg Mason’s board of directors declared a 25% hike in its quarterly cash dividend to 20 cents per share. The new dividend will be paid on Jul 13 to shareholders of record as of Jun 16.
Our Viewpoint
Legg Mason beat estimates in the final quarter of fiscal 2015 and we remain optimistic owing to its improved fundamentals. 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.
Further, with strategic acquisitions, restructuring initiatives and cost-cutting measures, we expect operating efficiencies to improve and steady capital deployment activities to continue to boost investor confidence in the stock. Legg Mason currently carries a Zacks Rank #3 (Hold).
Performance of Other Investment Management Firms
BlackRock, Inc. BLK reported first-quarter 2015 adjusted earnings of $4.89 per share, surpassing the Zacks Consensus Estimate of $4.51 for the sixth consecutive quarter. Also, the bottom line compared favorably with the year-ago quarter tally of $4.43.
T. Rowe Price Group, Inc. TROW reported first-quarter 2015 results net income of $1.13 per share, missing the Zacks Consensus Estimate by a penny. However, this compared favorably with the year-ago earnings of $1.12 per share.
Janus Capital Group, Inc. JNS reported first-quarter 2015 earnings per share attributable to common shareholders of 23 cents, beating the Zacks Consensus Estimate by 2 cents. Moreover, results compared favorably with the prior-year quarter earnings of 16 cents.
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