Earlier today, Legg Mason, Inc. (LM) reported revenues of $659.9 million in its fiscal second quarter, up 8% sequentially thanks to an increase in the percentage of higher yielding equity assets and higher performance fees.
On a year-over-year basis, revenues were down 32% because of a decline in fees earned due to lower average Assets Under Management (AUM).
Operating margins improved to 21.0% from 20.4% in the prior quarter, spurred by higher assets under management. However, it declined significantly from 29.1% year over year.
Net income came in at $45.8 million, compared to $50.1 million in the first quarter and a net loss of $108.7 million in the year-ago quarter.
EPS of 30 cents easily beat the Zacks Consensus Estimate of 21 cents.
As of Sep 30, 2009, AUM was $702.7 billion, up 7% sequentially from $656.9 billion, driven by market appreciation and reduced outflows. However, on a year-over-year basis, AUM was down 17% from $841.9 billion.
As of Sep 30, 2009, fixed income represented 55% of the consolidated AUM, and equity comprised 24%. The company has approximately 21% in cash and marketable securities. During the quarter, fixed income outflows were approximately $10 billion, equity outflows were $2 billion and liquidity inflows were $4 billion. Total outflows of $8 billion were a significant improvement from the $30 billion outflow in the last quarter.
At the end of the quarter, the company had approximately $1.6 billion in cash, and debt of $2.0 billion. Management added that the strong cash position, along with the significant cash tax benefits that the company enjoys, will enable management to reduce debt and reinvest in the company’s businesses.
During the quarter, Legg Mason re-branded and simplified its Legg Mason branded, retail-oriented fund families into one fund family. This follows the consolidation of operating platforms earlier this year, which now allows investors to broadly exchange products across both fund families and to aggregate purchases within a wider menu of funds. This, in turn, will help them reduce sales charges on new purchases.
The sharp decline in equity markets and dislocations in the credit markets has adversely affected the entire financial sector during fiscal 2009. The company continues to reel under the after effects of an acute recessionary environment as most of the company’s business continues to face difficult market conditions. Going forward, management believes the conditions will remain challenging in fiscal 2010 as well.
Nevertheless, management has been able to pave a recovery path from the past two quarters after posting five consecutive quarters of net losses, given early signs of economic recovery and improvement in business sentiments. However, the road to recovery will be a long and challenging one.
Based in Baltimore, Maryland, Legg Mason is a global asset management firm serving individual and institutional investors worldwide. It competes with top players like BlackRock, Inc. (BLK) in this space.
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