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Legg Mason (LM) Q1 Earnings Meet Estimates, Revenues Fall

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Legg Mason Inc. has reported first-quarter fiscal 2021 (ended Jun 30) adjusted earnings of 71 cents per share, in line with the Zacks Consensus Estimate. The reported figure, however, declined 5.3% year over year.

Results were supported by a decline in expenses. Also, a rise in assets under management (AUM) during the quarter was a positive factor. However, lower revenues resulting from a fall in investment advisory fees impacted the company’s performance.

Including certain one-time items, Legg Mason has reported net income of $49.4 million or 54 cents per share compared with the net income of $45.4 million or 51 cents recorded in the year-ago period.

Revenues Fall, Expenses Decline

The company’s total operating revenues in the June-ended quarter were $666.2 million, down 5.6% year over year.

Investment advisory fees fell 4.6% year over year to $604.7 million during the quarter. In addition, distribution and service fees were down 14.4% year over year to $59.9 million. However, other revenues rose 20.1% year over year to $1.6 million.

Operating expenses declined 3.7% to $598.5 million on a year-over-year basis. This downside chiefly resulted from lower compensation and benefits along with distribution and servicing expenses, partly offset by a rise in communication and technology expenses.

Non-operating income was $1.3 million against non-operating expenses of $4.3 million reported in the prior-year quarter.

Adjusted operating margin of Legg Mason was 22.1% in the June-end quarter, up from 21.6% recorded in the prior-year period.

Assets Position Improve

As of Jun 30, 2020, the company’s AUM was $783.4 billion, up slightly year over year from $780.2 billion. Of the total AUM, fixed income constituted 57%, equity 25%, and liquidity and alternatives both represented 9%.

Also, AUM increased 7.2% sequentially from $730.8 billion as of Mar 31, 2020, supported by a favorable market performance of $59.7 billion and positive foreign exchange of $2.9 billion. These were partly countered by long-term outflows of $4.6 billion, liquidity outflows of $5.2 billion and realizations of $0.2 billion.

Notably, long-term flows included equity outflows of $2 billion and fixed-income outflows of $3.1 billion, partly negated by alternative inflows of $0.5 billion.

Additionally, average AUM was $764.4 billion compared with the $765.9 billion witnessed in the year-earlier period and $782.4 billion in the previous quarter.

Strong Balance Sheet

As of Jun 30, 2020, Legg Mason had $0.9 billion in cash. Total debt was $2.2 billion. Shareholders’ equity was $3.9 billion.

The ratio of total debt to total capital (total equity plus total debt excluding consolidated investment vehicles) was 37%, up from the previous quarter’s 35%.

Our Viewpoint

Legg Mason’s performance in the fiscal first quarter was decent. The company was able to benefit from the favorable markets during the quarter. Since Legg Mason’s merger with Franklin Resources (BEN) is expected to close on Jul 31, 2020, the reported quarter is likely to have been Legg Mason’s final quarterly earnings as a public company.

However, its merger with Franklin will likely create a strong separately-managed account business, which aims to grab market opportunities and scale the client base higher, striking a balance between institutional and retail client AUM.

Legg Mason, Inc. Price, Consensus and EPS Surprise


Legg Mason, Inc. Price, Consensus and EPS Surprise

Legg Mason, Inc. price-consensus-eps-surprise-chart | Legg Mason, Inc. Quote

Legg Mason currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Asset Managers

Blackstone’s (BX - Free Report) second-quarter 2020 distributable earnings of 43 cents per share were in line with the Zacks Consensus Estimate. However, the figure declined 25% from the prior-year quarter.

Cohen & Steers’ (CNS - Free Report) second-quarter 2020 adjusted earnings of 54 cents per share missed the Zacks Consensus Estimate of 55 cents. Moreover, the bottom line was 12.9% lower than the year-ago reported figure.

SEI Investments Co.’s (SEIC - Free Report) second-quarter 2020 earnings of 68 cents per share lagged the Zacks Consensus Estimate of 69 cents. Moreover, the figure reflects a decline of 17.1% from the prior-year quarter.

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