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Legg Mason Inc. reported positive earnings surprise of 2.6% in first-quarter fiscal 2019 (ended Jun 30). The company reported adjusted net income of 80 cents per share, outpacing the Zacks Consensus Estimate of 78 cents. Moreover, results improved 21.2% year over year.
Controlled expenses and higher assets under management (AUM) were a positive factor. However, fall in revenues, resulting from lower investment advisory fees, remains a major drag.
Including certain one-time items, Legg Mason reported net income of $66.1 million or 75 cents per share compared with $50.9 million or 52 cents recorded in the year-ago quarter.
Revenues Down, Expenses Fall
Legg Mason’s total operating revenues in the reported quarter came in at $747.9 million, down 6% year over year. The fall mainly resulted from lower non-pass performance fees, as well as reduced pass-through performance fees. In addition, revenues lagged the Zacks Consensus Estimate of $754 million.
Investment advisory fees decreased 6.5% year over year to $667.6 million in the quarter. However, other revenues climbed 9.1% year over year to $1.2 million. Distribution and service fees were slightly up year over year to $79.2 million.
Operating expenses dropped 9% to $622.2 million on a year-over-year basis. The fall can be chiefly attributed to lower compensation and benefits expenses, as well as decrease in Clarion pass-through performance fees.
Adjusted operating margin of Legg Mason was 22.3% in the quarter, down from 22.5% recorded in the prior-year quarter.
Solid Assets Position
As of Jun 30, 2018, Legg Mason’s AUM was $744.6 billion, slightly up year over year from $741.2 billion. Of the total AUM, fixed income constituted 55%, equity 28%, liquidity 8% and alternatives represented 9%.
Nevertheless, AUM edged down 1.3% sequentially from $754.1 billion as of Mar 31, 2018, impacted by negative foreign exchange of $6.5 billion, liquidity outflows of $2.9 billion, long-term outflows of $0.9 billion and realizations of $0.3 billion. These were partly offset by positive market performance of $1.1 billion.
Notably, long-term net outflows of $0.9 billion included equity outflows of $2.2 billion, offset by fixed income inflows of $1.3 billion.
Additionally, average AUM was $749.5 billion compared with $740.3 billion witnessed in the prior-year quarter, and $766.9 billion in the previous quarter.
Strong Balance Sheet
As of Jun 30, 2018, Legg Mason had $590.5 million in cash. Total debt was $2.3 billion. Shareholders’ equity came in at $3.9 billion.
The ratio of total debt to total capital (total equity plus total debt excluding consolidated investment vehicles) was 38%, in line with the prior quarter.
Our Viewpoint
We believe Legg Mason has the potential to outperform its peers over the long run, given its diversified product mix and leverage in the changing market demography. In addition to these, with strategic acquisitions, restructuring initiatives and cost-cutting measures, we anticipate the company’s operating efficiencies to improve. However, escalating expenses remain a key concern.
Legg Mason, Inc. Price, Consensus and EPS Surprise
BlackRock’s (BLK - Free Report) second-quarter 2018 adjusted earnings of $6.66 per share outpaced the Zacks Consensus Estimate of $6.60. Also, the bottom line came in 28% higher than the year-ago quarter. Results benefited from an improvement in revenues, rise in AUM and steady long-term inflows. However, an escalation in operating expenses acted as a headwind.
SEI Investments Co.’s (SEIC - Free Report) Q2 earnings of 75 cents per share were in line with the Zacks Consensus Estimate. Also, the figure grew 32% from the prior-year quarter. An increase in total revenues, partly offset by higher operating expenses, aided the company’s results. AUM witnessed solid growth.
T. Rowe Price Group, Inc. (TROW - Free Report) reported April-June quarter adjusted earnings per share of $1.87, improving 46.1% from the year-ago figure of $1.28. The Zacks Consensus Estimate was $1.80. Results were driven by higher revenues and assets under management (AUM). Nonetheless, escalating expenses were a concern.
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Legg Mason (LM) Q1 Earnings Reflect Controlled Expenses
Legg Mason Inc. reported positive earnings surprise of 2.6% in first-quarter fiscal 2019 (ended Jun 30). The company reported adjusted net income of 80 cents per share, outpacing the Zacks Consensus Estimate of 78 cents. Moreover, results improved 21.2% year over year.
Controlled expenses and higher assets under management (AUM) were a positive factor. However, fall in revenues, resulting from lower investment advisory fees, remains a major drag.
Including certain one-time items, Legg Mason reported net income of $66.1 million or 75 cents per share compared with $50.9 million or 52 cents recorded in the year-ago quarter.
Revenues Down, Expenses Fall
Legg Mason’s total operating revenues in the reported quarter came in at $747.9 million, down 6% year over year. The fall mainly resulted from lower non-pass performance fees, as well as reduced pass-through performance fees. In addition, revenues lagged the Zacks Consensus Estimate of $754 million.
Investment advisory fees decreased 6.5% year over year to $667.6 million in the quarter. However, other revenues climbed 9.1% year over year to $1.2 million. Distribution and service fees were slightly up year over year to $79.2 million.
Operating expenses dropped 9% to $622.2 million on a year-over-year basis. The fall can be chiefly attributed to lower compensation and benefits expenses, as well as decrease in Clarion pass-through performance fees.
Adjusted operating margin of Legg Mason was 22.3% in the quarter, down from 22.5% recorded in the prior-year quarter.
Solid Assets Position
As of Jun 30, 2018, Legg Mason’s AUM was $744.6 billion, slightly up year over year from $741.2 billion. Of the total AUM, fixed income constituted 55%, equity 28%, liquidity 8% and alternatives represented 9%.
Nevertheless, AUM edged down 1.3% sequentially from $754.1 billion as of Mar 31, 2018, impacted by negative foreign exchange of $6.5 billion, liquidity outflows of $2.9 billion, long-term outflows of $0.9 billion and realizations of $0.3 billion. These were partly offset by positive market performance of $1.1 billion.
Notably, long-term net outflows of $0.9 billion included equity outflows of $2.2 billion, offset by fixed income inflows of $1.3 billion.
Additionally, average AUM was $749.5 billion compared with $740.3 billion witnessed in the prior-year quarter, and $766.9 billion in the previous quarter.
Strong Balance Sheet
As of Jun 30, 2018, Legg Mason had $590.5 million in cash. Total debt was $2.3 billion. Shareholders’ equity came in at $3.9 billion.
The ratio of total debt to total capital (total equity plus total debt excluding consolidated investment vehicles) was 38%, in line with the prior quarter.
Our Viewpoint
We believe Legg Mason has the potential to outperform its peers over the long run, given its diversified product mix and leverage in the changing market demography. In addition to these, with strategic acquisitions, restructuring initiatives and cost-cutting measures, we anticipate the company’s operating efficiencies to improve. However, escalating expenses remain a key concern.
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). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Competitive Landscape
BlackRock’s (BLK - Free Report) second-quarter 2018 adjusted earnings of $6.66 per share outpaced the Zacks Consensus Estimate of $6.60. Also, the bottom line came in 28% higher than the year-ago quarter. Results benefited from an improvement in revenues, rise in AUM and steady long-term inflows. However, an escalation in operating expenses acted as a headwind.
SEI Investments Co.’s (SEIC - Free Report) Q2 earnings of 75 cents per share were in line with the Zacks Consensus Estimate. Also, the figure grew 32% from the prior-year quarter. An increase in total revenues, partly offset by higher operating expenses, aided the company’s results. AUM witnessed solid growth.
T. Rowe Price Group, Inc. (TROW - Free Report) reported April-June quarter adjusted earnings per share of $1.87, improving 46.1% from the year-ago figure of $1.28. The Zacks Consensus Estimate was $1.80. Results were driven by higher revenues and assets under management (AUM). Nonetheless, escalating expenses were a concern.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>