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Will Macro Issues Hurt Legg Mason's (LM) Fiscal Q1 Earnings?
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Legg Mason Inc. is scheduled to report its fiscal first-quarter 2017 results on Jul 27, after the market close.
The Minnesota-based banking giant’s fiscal fourth-quarter 2016 earnings reported a loss against the adjusted income in the year-ago quarter. Notably, the company recorded certain non-recurring items including acquisition and transition-related costs along with a compensation charge associated with the Royce management equity plan (MEP). Reduced revenues, higher expenses and decreased assets under management (AUM) were the headwinds. However, steady capital deployment activities were a positive.
Legg Mason has a disappointing surprise history, as evident from the chart below:
Amid several issues including uncertainty related to U.S. monetary policy and global economic growth, the U.S. markets remained rough from the start of the year, and only returned to the positive territory at the end of quarter.
The company reported an increase in its AUM for June quarter-end 2016. Quarter-end AUM was $741.9 billion, up from $699.2 billion in the prior year period. June quarter’s AUM exhibited liquidity and fixed-income inflows of $13.9 billion and $2.0 billion, respectively, along with a positive foreign exchange impact of about $3.0 billion.
Also, driven by inflows in fixed income, the company experienced long-term inflows of $0.6 billion for June quarter, resulting in $14.5 billion of inflows for the fiscal first-quarter.
Despite the global uncertainties and market volatility that prevailed in the quarter, we believe Legg Mason’s diversified nature of business will enhance its results. Additionaly, several acquisitions made during the quarter will continue lending support to Legg Mason’s upcoming results.
Regarding Clarion Partners, Legg Mason expects non-cash MEP charge in the range of $18–$21 million in fiscal first-quarter 2017. In connection to the EnTrustPermal combination, Legg Mason expects severance and related charges in the range of $13–$15 million in fiscal first-quarter 2017. Real estate related/other charges are expected in the range of $8–$10 million in fiscal first-quarter 2017.
Acquisition charges related bankers’ fees and accounting/legal costs are expected in the range of $12–$15million in fiscal first-quarter 2017. Overall, the company is likely to incur deal related charges of $43 million to $55 million in fiscal first-quarter 2017.
During the fourth–quarter fiscal 2016, the compensation and benefits ratio came in at 54%, in line with its guidance. However, for first quarter management expects the ratio to decline slightly, to the range of 53% to 54%.
Additionally, the company expects positive impact from the transactions with EnTrust and Clarion Partners. Notably, EPS accretion is expected in the range of 10-20 cents in the first year, excluding the related charges.
Activities of Legg Mason during the quarter succeeded to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter moved up 1.4% to 73 cents over the last seven days.
Earnings Whispers
Our proven model does not conclusively show that Legg Mason is likely to beat the Zacks Consensus Estimate in the fiscal first-quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for an earnings beat. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Earnings ESP for Legg Mason is -13.70%. This is because the Most Accurate estimate of 63 cents lags the Zacks Consensus Estimate of 73 cents.
Zacks Rank: Though Legg Mason’s Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings beat.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter:
The Earnings ESP for LPL Financial Holdings Inc. (LPLA - Free Report) is +2.33% and it carries a Zacks Rank #3. The company is expected to release second-quarter results on Jul 28.
Cullen/Frost Bankers, Inc. (CFR - Free Report) has an Earnings ESP of +0.96% and a Zacks Rank #3. It is expected to report second-quarter results on Jul 27.
The Earnings ESP for Federated Investors, Inc. is +2.13% and it carries a Zacks Rank #3. The company is slated to release second-quarter results on Jul 28.
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Will Macro Issues Hurt Legg Mason's (LM) Fiscal Q1 Earnings?
Legg Mason Inc. is scheduled to report its fiscal first-quarter 2017 results on Jul 27, after the market close.
The Minnesota-based banking giant’s fiscal fourth-quarter 2016 earnings reported a loss against the adjusted income in the year-ago quarter. Notably, the company recorded certain non-recurring items including acquisition and transition-related costs along with a compensation charge associated with the Royce management equity plan (MEP). Reduced revenues, higher expenses and decreased assets under management (AUM) were the headwinds. However, steady capital deployment activities were a positive.
Legg Mason has a disappointing surprise history, as evident from the chart below:
LEGG MASON INC Price and EPS Surprise
LEGG MASON INC Price and EPS Surprise | LEGG MASON INC Quote
What to Expect in Fiscal Q1
Amid several issues including uncertainty related to U.S. monetary policy and global economic growth, the U.S. markets remained rough from the start of the year, and only returned to the positive territory at the end of quarter.
The company reported an increase in its AUM for June quarter-end 2016. Quarter-end AUM was $741.9 billion, up from $699.2 billion in the prior year period. June quarter’s AUM exhibited liquidity and fixed-income inflows of $13.9 billion and $2.0 billion, respectively, along with a positive foreign exchange impact of about $3.0 billion.
Also, driven by inflows in fixed income, the company experienced long-term inflows of $0.6 billion for June quarter, resulting in $14.5 billion of inflows for the fiscal first-quarter.
Despite the global uncertainties and market volatility that prevailed in the quarter, we believe Legg Mason’s diversified nature of business will enhance its results. Additionaly, several acquisitions made during the quarter will continue lending support to Legg Mason’s upcoming results.
Notably, management projects performance fees below $5 million.
Regarding Clarion Partners, Legg Mason expects non-cash MEP charge in the range of $18–$21 million in fiscal first-quarter 2017. In connection to the EnTrustPermal combination, Legg Mason expects severance and related charges in the range of $13–$15 million in fiscal first-quarter 2017. Real estate related/other charges are expected in the range of $8–$10 million in fiscal first-quarter 2017.
Acquisition charges related bankers’ fees and accounting/legal costs are expected in the range of $12–$15million in fiscal first-quarter 2017. Overall, the company is likely to incur deal related charges of $43 million to $55 million in fiscal first-quarter 2017.
During the fourth–quarter fiscal 2016, the compensation and benefits ratio came in at 54%, in line with its guidance. However, for first quarter management expects the ratio to decline slightly, to the range of 53% to 54%.
Additionally, the company expects positive impact from the transactions with EnTrust and Clarion Partners. Notably, EPS accretion is expected in the range of 10-20 cents in the first year, excluding the related charges.
Activities of Legg Mason during the quarter succeeded to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter moved up 1.4% to 73 cents over the last seven days.
Earnings Whispers
Our proven model does not conclusively show that Legg Mason is likely to beat the Zacks Consensus Estimate in the fiscal first-quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for an earnings beat. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Earnings ESP for Legg Mason is -13.70%. This is because the Most Accurate estimate of 63 cents lags the Zacks Consensus Estimate of 73 cents.
Zacks Rank: Though Legg Mason’s Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings beat.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter:
The Earnings ESP for LPL Financial Holdings Inc. (LPLA - Free Report) is +2.33% and it carries a Zacks Rank #3. The company is expected to release second-quarter results on Jul 28.
Cullen/Frost Bankers, Inc. (CFR - Free Report) has an Earnings ESP of +0.96% and a Zacks Rank #3. It is expected to report second-quarter results on Jul 27.
The Earnings ESP for Federated Investors, Inc. is +2.13% and it carries a Zacks Rank #3. The company is slated to release second-quarter results on Jul 28.
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 >>