It has been about a month since the last earnings report for Legg Mason . Shares have added about 0.1% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Legg Mason due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Legg Mason's Q4 Earnings Beat Estimates, Revenues Climb
Legg Mason reported positive earnings surprise of 18.6% in fourth-quarter fiscal 2019 (ended Mar 31). The company reported adjusted net income of $1.02 per share, outpacing the Zacks Consensus Estimate of 86 cents. Also, the reported figure surged 52.2% year over year.
Higher revenues resulting from elevated investment advisory fees aided the company’s performance. Further, controlled expenses were a tailwind. However, a fall in AUM was a major drag during the quarter.
Including certain one-time items, Legg Mason reported net income of $64.2 million or 70 cents per share compared with the net income of $49.5 million or 56 cents recorded in the year-ago period.
Including certain one-time items, for fiscal 2020, net income came in at $251.4 million or $2.79 per share as against the net loss of $28.5 million or 38 cents per share reported in the prior fiscal year.
Revenues Climb, Expenses Down
For fiscal 2020, Legg Mason reported total revenues of $2.92 billion, marginally up year over year, reflecting higher advisory and non-pass through performance fee, partly offset by lower pass-through performance fees. Revenues came in line with the Zacks Consensus Estimate.
Legg Mason’s total operating revenues in the January-March quarter came in at $719.6 million, up 4% year over year. This upswing mainly resulted from higher advisory and pass-through performance fees, partly muted by lower non-pass performance fees.
Investment advisory fees climbed 5.3% year over year to $651.9 million during the quarter. In addition, other revenues surged 66.7% year over year to $2 million. However, distribution and service fees were down 9.2% year over year to $65.8 million.
Operating expenses declined 10% to $553.3 million on a year-over-year basis. This downside chiefly resulted from lower compensation and benefits, occupancy and other expenses, partly offset by rise in communications and technology expenses.
Non-operating expense was $65.3 million, significantly up year over year.
Adjusted operating margin of Legg Mason was 25.8% in the March-end quarter, up from the 20.4% recorded in the prior-year period.
As of Mar 31, 2020, Legg Mason’s AUM was $730.8 billion, down 3.6% year over year from $758 billion. Of the total AUM, fixed income constituted 58%, equity 22%, liquidity 10% and alternatives represented 10%.
Also, AUM descended 9% sequentially from $803.5 billion as of Dec 31, 2019, impacted by a negative market performance and other, long-term outflows of $12.1 billion, negative foreign exchange of $7.8 billion and realizations of $0.2 billion. These were partly countered by liquidity inflows of $11.6 billion.
Notably, long-term flows included equity outflows of $6 billion and fixed-income outflows of $8.4 billion, partly negated by alternative inflows of $2.3 billion.
Additionally, average AUM was $782.4 billion compared with the $748.7 billion witnessed in the year-earlier period and $791.7 billion in the previous quarter.
Strong Balance Sheet
As of Mar 31, 2020, Legg Mason had $1 billion in cash. Total debt was $2 billion. Shareholders’ equity came in at $3.8 billion.
The ratio of total debt to total capital (total equity plus total debt excluding consolidated investment vehicles) was 35%, up from the previous quarter’s 34%.
The company expect to incur aggregate strategic restructuring costs in the range of $130 million to $150 million. Also, annual cost savings of $100 million or more on a run rate basis is anticipated by the end of fiscal 2021.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
At this time, Legg Mason has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Legg Mason has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.