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Legg Mason (LM) Q1 Earnings Miss Estimates on High Costs
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Legg Mason Inc. reported negative earnings surprise of 57.5% in the first quarter of fiscal 2017 (ended Jun 30). The company reported net income of 31 cents per share, missing the Zacks Consensus Estimate of 73 cents. Moreover, results were down 63% year over year.
Reduced revenues and higher expenses were the primary headwinds. However, increase in assets under management (AUM) and steady capital deployment activities were the tailwinds.
Including one-time items, Legg Mason reported net income of $33.5 million compared with $94.5 million in the prior-year quarter.
Notably, Legg Mason recorded non-recurring items including acquisition and transition-related costs of $56.8 million or 37 cents per share along with a credit of $18.0 million or 17 cents per share, which excludes 6 cents per share related to tax annualization impact of the credit for a contingent consideration fair value adjustment.
Revenues Decline with an Increase in Expenses
Legg Mason’s total operating revenue in the first quarter came in at $700.2 million, down 1% year over year. The decline was mainly due to AUM mix though increased revenues associated with the addition of Clarion and EnTrust. However, revenues outpaced the Zacks Consensus Estimate of $689 million.
Investment advisory fees decreased slightly year over year to $607.9 million in the quarter. Further, distribution and service fees were down 5.7% year over year to $91.4 million. However, other revenues increased 46.5% year over year to $1 million.
Operating expenses increased 7.3% to $626.6 million on a year-over-year basis. The rise was chiefly due to acquisition and transition-related costs incurred during the reported quarter. Moreover, compensation and benefits escalated 13.8% year over year.
Adjusted operating margin of Legg Mason was 11.3%, significantly down from 22.6% in the prior-year quarter.
Solid Assets Position
As of Jun 30, 2016, Legg Mason’s AUM was $741.9 billion, up 6% year over year from $699.2 billion. Of the total AUM, fixed income constituted 52%, equity 22%, liquidity 16% and alternatives represented 10%.
AUM increased 10.8% sequentially from $669.6 billion as of Mar 31, 2016, driven by $51.1 billion from the Clarion Partners and EnTrust Capital acquisitions, positive market performance of $12.3 billion, liquidity inflows of $8.0 billion and $2.0 billion in positive foreign exchange. These positives were partially offset by long-term outflows of $1.1 billion.
Notably, long-term net outflows of $1.1 billion included equity outflows of $3.0 billion and alternative outflows of $2.0 billion, partially offset by fixed income inflows of $3.9 billion. Additionally, average AUM was $709.1 billion, compared with $662.3 billion in the prior quarter and $703.9 billion in the prior-year quarter.
Strong Balance Sheet
As of Jun 30, 2016, Legg Mason had $491 million in cash, down from $1.3 billion in the prior quarter. Total debt was $2.2 billion, up from $1.8 billion in the preceding quarter. Shareholders’ equity was $4.1 billion, down from $4.2 billion in the previous quarter.
The ratio of total debt to total capital (total equity plus total debt excluding consolidated investment vehicles) was 36%, up from 30% in the prior quarter.
Legg Mason repurchased 3.5 million shares in the reported quarter.
Our Viewpoint
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 anticipate operating efficiencies to improve. Further, steady capital deployment activities persistently continue to boost investor confidence in the stock. However, escalating expenses and lower revenues remain the primary woes.
Legg Mason currently carries a Zacks Rank #3 (Hold).
Competitive Landscape
T. Rowe Price Group, Inc. (TROW - Free Report) reported second quarter of fiscal 2016 net income of 76 cents per share missing the Zacks Consensus Estimate of $1.13. Moreover, the reported figure decreased from the year-ago earnings of $1.24. Notably, results included non-recurring operating charge associated with the compensation to certain clients in relation to the Dell appraisal rights matter which resulted in reduced net income by 39 cents per share.
Janus Capital Group, Inc. recorded a negative earnings surprise of 4.55% in second quarter of 2016. The company reported earnings per share attributable to common shareholders of 21 cents, missing the Zacks Consensus Estimate by a penny. Moreover, results fell below the prior-year quarter figure of 23 cents.
Ameriprise Financial Inc. (AMP - Free Report) reported second quarter of fiscal 2016 operating earnings per share of $2.23, missing the Zacks Consensus Estimate of $2.27. The figure also represents a year-over-year decrease of 4.5%. The results came in lower than expected primarily due to a drop in revenues. However, a decline in operating expenses and increase in AUM and assets under administration were on the positive side.
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Legg Mason (LM) Q1 Earnings Miss Estimates on High Costs
Legg Mason Inc. reported negative earnings surprise of 57.5% in the first quarter of fiscal 2017 (ended Jun 30). The company reported net income of 31 cents per share, missing the Zacks Consensus Estimate of 73 cents. Moreover, results were down 63% year over year.
Reduced revenues and higher expenses were the primary headwinds. However, increase in assets under management (AUM) and steady capital deployment activities were the tailwinds.
Including one-time items, Legg Mason reported net income of $33.5 million compared with $94.5 million in the prior-year quarter.
Notably, Legg Mason recorded non-recurring items including acquisition and transition-related costs of $56.8 million or 37 cents per share along with a credit of $18.0 million or 17 cents per share, which excludes 6 cents per share related to tax annualization impact of the credit for a contingent consideration fair value adjustment.
Revenues Decline with an Increase in Expenses
Legg Mason’s total operating revenue in the first quarter came in at $700.2 million, down 1% year over year. The decline was mainly due to AUM mix though increased revenues associated with the addition of Clarion and EnTrust. However, revenues outpaced the Zacks Consensus Estimate of $689 million.
Investment advisory fees decreased slightly year over year to $607.9 million in the quarter. Further, distribution and service fees were down 5.7% year over year to $91.4 million. However, other revenues increased 46.5% year over year to $1 million.
Operating expenses increased 7.3% to $626.6 million on a year-over-year basis. The rise was chiefly due to acquisition and transition-related costs incurred during the reported quarter. Moreover, compensation and benefits escalated 13.8% year over year.
Adjusted operating margin of Legg Mason was 11.3%, significantly down from 22.6% in the prior-year quarter.
Solid Assets Position
As of Jun 30, 2016, Legg Mason’s AUM was $741.9 billion, up 6% year over year from $699.2 billion. Of the total AUM, fixed income constituted 52%, equity 22%, liquidity 16% and alternatives represented 10%.
AUM increased 10.8% sequentially from $669.6 billion as of Mar 31, 2016, driven by $51.1 billion from the Clarion Partners and EnTrust Capital acquisitions, positive market performance of $12.3 billion, liquidity inflows of $8.0 billion and $2.0 billion in positive foreign exchange. These positives were partially offset by long-term outflows of $1.1 billion.
Notably, long-term net outflows of $1.1 billion included equity outflows of $3.0 billion and alternative outflows of $2.0 billion, partially offset by fixed income inflows of $3.9 billion. Additionally, average AUM was $709.1 billion, compared with $662.3 billion in the prior quarter and $703.9 billion in the prior-year quarter.
Strong Balance Sheet
As of Jun 30, 2016, Legg Mason had $491 million in cash, down from $1.3 billion in the prior quarter. Total debt was $2.2 billion, up from $1.8 billion in the preceding quarter. Shareholders’ equity was $4.1 billion, down from $4.2 billion in the previous quarter.
The ratio of total debt to total capital (total equity plus total debt excluding consolidated investment vehicles) was 36%, up from 30% in the prior quarter.
Legg Mason repurchased 3.5 million shares in the reported quarter.
Our Viewpoint
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 anticipate operating efficiencies to improve. Further, steady capital deployment activities persistently continue to boost investor confidence in the stock. However, escalating expenses and lower revenues remain the primary woes.
LEGG MASON INC Price, Consensus and EPS Surprise
LEGG MASON INC Price, Consensus and EPS Surprise | LEGG MASON INC Quote
Legg Mason currently carries a Zacks Rank #3 (Hold).
Competitive Landscape
T. Rowe Price Group, Inc. (TROW - Free Report) reported second quarter of fiscal 2016 net income of 76 cents per share missing the Zacks Consensus Estimate of $1.13. Moreover, the reported figure decreased from the year-ago earnings of $1.24. Notably, results included non-recurring operating charge associated with the compensation to certain clients in relation to the Dell appraisal rights matter which resulted in reduced net income by 39 cents per share.
Janus Capital Group, Inc. recorded a negative earnings surprise of 4.55% in second quarter of 2016. The company reported earnings per share attributable to common shareholders of 21 cents, missing the Zacks Consensus Estimate by a penny. Moreover, results fell below the prior-year quarter figure of 23 cents.
Ameriprise Financial Inc. (AMP - Free Report) reported second quarter of fiscal 2016 operating earnings per share of $2.23, missing the Zacks Consensus Estimate of $2.27. The figure also represents a year-over-year decrease of 4.5%. The results came in lower than expected primarily due to a drop in revenues. However, a decline in operating expenses and increase in AUM and assets under administration were on the positive side.
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 >>