Legg Mason Inc. (LM), the money manager that has struggled with more than five years of net redemptions, said fiscal second-quarter profit rose 6.8 percent as a market rally lifted assets and fees tied to performance rose.
Net income increased to $86.3 million, or 70 cents a share, in the three months ended Sept. 30, from $80.8 million, or 60 cents, a year earlier, the Baltimore-based firm said today in a statement. Earnings in the quarter included a tax benefit of 16 cents a share, compared with 13 cents in the year-earlier period. Fifteen analysts surveyed by Bloomberg estimated earnings averaging 62 cents a share.
Joseph A. Sullivan, 55, named chief executive officer in February, has vowed to stem withdrawals by focusing on Legg Mason’s product lineup and improving performance, while reorganizing businesses to cut costs. Clients pulled $4 billion from the firm’s stock funds while depositing $300 million into its bond vehicles and $2.3 billion into its money funds. Long-term net deposits into Legg Mason’s Western Asset Management bond unit were the first since September 2007, Sullivan said today during a conference call with investors.
“Fixed-income inflows were better than expectations,” Daniel Fannon, an analyst at Jefferies & Co. in San Francisco, said today in a note to clients. “Performance fees and expense controls drove the majority of the beat” as well as a lower tax rate, he said.
Legg Mason shares rose 2.8 percent to close at $37.91 in New York. The stock increased 47 percent this year, compared with the 35 percent gain in the Standard & Poor’s 20-member index of custody banks and asset managers. The shares have declined more than 70 percent from their peak of $136.40 in February 2006.
U.S. money managers were hurt by investor redemptions in the third quarter after concerns that the Federal Reserve will scale back its asset purchases triggered a flight from bonds and investors continued to shy away from active stock-picking.
T. Rowe Price Group Inc. (TROW) said yesterday that clients withdrew a net $7.4 billion, marking the second straight quarter of redemptions for the Baltimore-based company. Franklin Resources Inc. (BEN), the San Mateo, California-based asset manager, said investors withdrew $2.7 billion and AllianceBernstein Holding LP (AB) said investors removed a net $4.8 billion.
Legg Mason, whose assets peaked at $1 trillion in 2007 as investors flocked to funds run by top-ranked managers such as Bill Miller, oversaw $656 billion at the end of September, a 0.8 percent increase from a year earlier and a 1.8 percent climb from the previous quarter. About 54 percent of the assets were in fixed income. The MSCI ACWI Index of global stocks rose 7.4 percent in the quarter and 15 percent in the year through Sept. 30.
In the quarter ended June 30, the firm had its first net deposits since 2007 into long-term funds, which exclude short-dated assets such as money-market accounts.
“We’ve come a long way over this past year of transition,” Sullivan, who became interim CEO in October 2012, said during a conference call today with analysts and investors. “We’re all very pleased, but we’re not satisfied.”
Legg Mason said last month it would incur about $10 million in severance and other costs in each of the quarters ending Sept. 30 and Dec. 31 tied to closing and reorganizing businesses. The reorganization includes closing Legg Mason’s emerging-markets equity unit, Esemplia Emerging Markets, and transitioning the client-services business in Canada to the firm’s affiliates. Following the changes, Legg Mason said it expects to see about $2.5 million in net increases in quarterly pretax earnings, beginning in the three months ending March 31.
Revenue increased 4.6 percent to $669.9 million compared with a year earlier, on higher average equity assets under management and performance fees, which climbed 69 percent to $17.3 million. Operating expenses rose 0.5 percent to $563.5 million compared with a year earlier, driven by higher distribution expenses and the restructuring costs.
The firm’s stock assets rose 10 percent to $169.5 billion in the year ended Sept. 30. Bond assets, managed mostly by Western Asset, fell 3.9 percent to $355 billion and money funds increased 2.8 percent to $131.5 billion.
BlackRock Inc. (BLK), the world’s largest asset manager, said Oct. 16 its third-quarter net income rose 14 percent to $730 million. Investors deposited a net $25 billion into the New York-based firm, driven by flows to equity exchange-traded funds.
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