JULY 26, 2010, 6:24 P.M. ET
By Jon Kamp and Joan E. Solsman Of DOW JONES NEWSWIRES
Legg Mason Inc.'s (LM) fiscal first-quarter profit fell 4.2% as investors continued to pull funds from the asset manager's fixed-income business and investments wilted in the stock-market decline.
Shares were down 5.2% at $28.53 in after-hours trading Monday as earnings fell just short of analysts' expectations. Sales were better than anticipated, though, helped by the reduction in waivers for money-market funds and a shift toward business that generates higher fees, Chairman and Chief Executive Mark R. Fetting said.
That shift was reflected by the first quarter of positive flows into equity funds that Legg Mason has seen in more than four years, even though the industry at large has recently seen money flowing the other way amid market volatility. Legg Mason reported $700 million in equity inflows, helped by the recent launch of a new closed-end mutual fund that raised $1.3 billion.
Still, the company also had $9.4 billion in fixed-income outflows, up from the fiscal fourth quarter. In total, $23.1 billion of outflows in the recent quarter was also up from the fiscal fourth quarter.
"In fixed income, we are hard at work on the longer term process of turning flows to positive following sustained improved investment performance," Fetting said in a release Monday.
He added on a call that while there are still "pockets of redemptions" at Western Asset Management, the company's fixed-income affiliate, "the performance and improvement at Western is profound." The company has been working to shore up that business after acknowledging some performance challenges there.
Baltimore-based Legg Mason, one of the world's biggest publicly traded money managers, has struggled to reverse the trend of investors pulling out money after it took large hits from structured investment funds during the financial crisis. Assets under management fell 6% during the recent quarter to $645.4 billion amid the outflows and declines in the stock market.
For the quarter ended June 30, Legg Mason posted a profit of $47.9 million, or 30 cents a share, compared with $50.1 million, or 35 cents a share, a year earlier. It had 12% more shares outstanding in the most recent period. The company noted that the launch of the closed-end fund boosted operating expenses in the quarter.
Revenue increased 10% to $674.2 million. Analysts surveyed by Thomson Reuters predicted 31 cents in earnings on $652 million in revenue.
Operating income, which excludes investment gains and losses, rose 76%.
In May, the company unveiled a streamlining plan that included job cuts, as well as a stock buyback program worth up to $1 billion, of which it has already repurchased $300 million. Its market capitalization is about $4.6 billion. Investors expected some changes after activist investor Nelson Peltz took a seat on the board late last year.
The 18-month streamlining plan aims for a 6% to 8% improvement in adjusted operating margins by the end of fiscal 2012, which comes at the end of March 2012. It anticipates the full impact of savings--an annual rate of $130 million to $150 million in savings--will show up by the fourth quarter that year.
"I think we're going to hit those saves and if anything we'll hit them sooner," Fetting said in an interview.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com
From The wall Street Journal published on JULY 26, 2010, 6:24 P.M. ET