Legg Mason reports Q1 profit of $60M

Posted: 7:53 am Thu, July 28, 2011
By Rachel Bernstein
Daily Record Business Writer

Money manager Legg Mason Inc. Thursday reported a 25 percent increase in profit from the corresponding period a year ago, but said assets under management were down 2 percent for the quarter ending June 30.

The Baltimore company reported $60 million in net income, or 40 cents per diluted share, for its fiscal first quarter, compared to $47.9 million, or 30 cents per diluted share, a year ago. The profit though, declined from the previous quarter, when Legg Mason earned $69 million, or 45 cents per diluted share.

Analysts had projected the company would earn 38 cents per share during the quarter, according to Thomson Reuters.

Assets under management declined from the fourth fiscal quarter by $14 billion, to $662.5 billion from $677.6 billion. Assets were up over the corresponding period in 2010, when they were at $645.4 billion.

Legg’s fixed-income funds — the largest asset class the company oversees — saw a net positive flow during that quarter, something that hasn’t happened since December 2007.

“I actually thought it was a relatively encouraging results conference call,” said Michael S. Kim, an analyst with Sandler O’Neill & Partners LP in New York. “They’re gaining momentum and saw fixed-income flows turn modestly positive. They did have some acceleration of equity outflows, but a lot of that can be linked to what I’ll call more ‘one-time-ish’ redemptions that hit during the quarter. They’re making progress on turning flows around. For all those reasons, I think it was a pretty encouraging quarter.”

Kim also said he was encouraged that Legg Mason continued to repurchase its own shares during the quarter.

Legg Mason’s operating expenses of $616.7 million were up from the $614.3 million in the fourth quarter of fiscal 2011.

“Clearly in the first quarter we were dealing with some choppy markets,” said Legg Mason Chief Financial Officer Peter H. Nachtwey in a conference call Thursday. “We’re going to streamline our business model, increase margins and operating income. In fiscal 2012, which will be somewhat fluid, there will be transition costs during certain periods. This will result in lumpy quarters because of the transition.”

The earnings report comes two days after the company announced it had laid off 180 people, about 5 percent of its workforce, in an effort to save as much as $150 million by next year.

“We have a new organizational structure in the U.S. to flatten the sales team,” Legg Mason CEO Mark R. Fetting said in the conference call Thursday to analysts and investors. “We’re eliminating layers, and putting more salespeople in front of advisers over the next few months. We will expand our coverage of advisers in the U.S.”

Legg’s shares lost $1.24, or 4.1 percent, Thursday to close at $29.30.