Legg Mason fiscal Q1 profit falls on costs
Legg Mason Inc reported on Monday its quarterly earnings decreased more than expected as expenses rose and investors pulled money out of many of its funds.
The Baltimore asset manager reported fiscal first-quarter net income of $47.9 million, or 30 cents per share, compared with net income of $50.1 million, or 35 cents per share, in the same period a year earlier. The quarter ended June 30.
Analysts had expected the company to report a profit of 31 cents per share, according to Thomson Reuters I/B/E/S. Expenses rose 3 percent to $571 million compared with a year ago.
Shares in Legg Mason were down 5 percent in after-hours trading to $28.53 per share, after closing at $30.08 for the day, up 3 percent.
Assets under management fell to $645.4 billion at June 30, from $684.5 billion at March 31, with most of the decrease tied to net outflows of $23.1 billion.
Fixed income outflows were $9.4 billion, and outflows from liquidity products like money-market funds were $14.4 billion. Market declines of $16 billion also drove down assets.
The company did have about $700 million flow into stock mutual funds, however -- the first quarter of such flows in over four years.
Sandler O'Neill analyst Michael Kim said he was satisfied with the flow figures because they were weighed so heavily to money-market funds. My general takeaway is that flows continue to improve, he said.
Although Legg Mason trades at a higher multiple of its earnings than peers, lingering outflows from its funds worry investors. Legg Mason's shares were down 4 percent for the year so far as of Friday.
Some support for the shares has been a buyback of up to $1 billion begun in the spring by Chief Executive Mark Fetting, along with a restructuring that includes about 350 layoffs.
The company has promised improved performance will reverse the outflows, concentrated in its Western Asset Management fixed-income unit. On a conference call with investors, Fetting did not predict exactly when it might return to net inflows. Given the market's recent volatility, he said, Consultants and clients may be waiting a few more quarters to evaluate Western's performance.
In an interview Fetting said Legg Mason still has work to do, but that it deserves more credit from investors. For instance, the company would have easily beat analyst estimates had it not been required to book the costs of the closed-end fund launch. These added $17.6 million to expenses, but brought in new money from investors. Absent that expense, Fetting said, It was a solid beat.
One laggard has been its Legg Mason Capital Management Value Trust fund run by famed stock picker Bill Miller.
Miller outperformed the Standard & Poor's 500 index for 15 years through 2005 but underperformed in 2006, 2007 and 2008. He beat the S&P 500 in 2009. Legg Mason in May named Sam Peters as co-manager of the fund and Miller's eventual successor, but gave no timetable for his retirement.
Severance payments and related costs added $3.2 million to the current quarter's expenses, Legg Mason said.
(Reporting by Ross Kerber; editing by Andre Grenon and Carol Bishopric)
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