Will High Performance Fees Aid Legg Mason (LM) Q4 Earnings?

Legg Mason LMis scheduled to report fourth-quarter fiscal 2018 (ended Mar 31) results on Apr 25, after the market closes. This asset management company is expected to witness a rise in other service revenues, while distribution and service fees will likely register a decline.

Given the increase in assets under management (the Zacks Consensus Estimate of $775 billion shows 6.

5% year-over-year rise) during the quarter, Legg Mason’s performance fees are projected to improve. The Zacks Consensus Estimate for performance fees of $30 million reflects 15.7% growth from the prior-year quarter. Nonetheless, management expects non-pass through (NPT) performance fees of $15-$25 million in the to-be-reported quarter.

Also, the Zacks Consensus Estimate for other service revenues of $1.13 million indicates a fall of 18.9% from the last-year quarter. However, distribution and service fees are anticipated to slip 11% year over year to $81 million.

Overall, Legg Mason is expected to record an increase in revenues. The Zacks Consensus Estimate for sales of $759.3 million indicates a rise of 5% year over year.

On the cost front, management predicts compensation ratio to be up 54-56%, reflecting seasonal compensation rise and lower NPT performance fees. Nonetheless, we expect overall operating expenses to trend upward as the company continues to invest in franchise.

Notably, the Zacks Consensus Estimate for earnings in the quarter to be reported has been revised nearly 2.7% downward over the last 30 days to 71 cents, with two estimates moving down. The estimate figure reflects a year-over-year decline of 22. 8%.