Legg Mason Inc. reported better-than-expected earnings Thursday and its first quarter in years with more money flowing into its mutual funds than being withdrawn.

The Baltimore-based money manager posted a $47.8 million profit in the quarter April through June, or 38 cents per share, 2 cents more than the average estimate of analysts. In the same quarter a year ago, Legg lost $9.5 million, or 7 cents a share, largely because of costs associated with refinancing its debt and launching two funds.

The company's shares rose more than 4 percent Thursday morning, ending the day up about 2.5 percent at $34.90 a share.

Macrae Sykes, an analyst with Gabelli & Co. in Rye, N.Y., said the market was responding to Legg's higher-than-expected profit.

"They are showing a stability in their flows," he added.

Not since September 2007 has Legg seen positive flows into its stock and bond funds in a quarter.

"We had a good, solid quarter," said CEO Joseph A. Sullivan.

In a call with analysts Thursday morning, Sullivan said Legg is selling one of its small affiliates, Private Capital Management in Naples, Fla., to the subsidiary's management team. The sale of the affiliate, which has $1.2 billion in assets, will result in a $3 million pre-tax charge related to severance, deferred compensation and similar expenses, he said.

Legg has a handful of small affiliates that were launched many years ago to serve a niche market or were acquired when the company took over Citigroup's asset management business in 2005. Sullivan said Legg might spin off others that were "strategic at the time, but no longer today."

Sullivan spent much of the call talking about Legg's desire to expand in the international equity market, possibly by acquiring another foreign asset manager. Legg acquired European money manager Fauchier Partners this year and merged it into its Permal Group affiliate.

Sullivan said he spends part of each day working on this. Legg has an attractive global distribution system, gives affiliates autonomy and is willing to spend money to build its subsidiaries, he said.

"We should be and will be a preferred acquirer," Sullivan said.

The firm's operating revenue reached $670.4 million in the April-to-June period, up 6 percent from a year earlier. Operating expenses also rose 6 percent, to $586.9 million, which included $26.3 million to launch a closed-end fund.

The money manager's assets under management totaled $644.5 billion at the end of June, down $20.1 billion from three months ago. That is largely because of an $11.6 billion decline in market performance and foreign exchange factors as well as $8.7 billion withdrawn from money market funds.

But net flows into stock and bond funds in the quarter grew $200 million, a feat not seen at Legg for nearly six years. The improvement was because of the new closed-end fund, a decrease in dollars coming out of stocks and money moving into fixed-income instruments.

Though this gain is modest, it came at a time many investors started to bolt from bonds as interest rates ticked up, Sullivan said.

"That feels good. ... It is not enough, and we're not satisfied," he said. Legg's goal is to produce consistent net inflows into its funds, he said.

eileen.ambrose@baltsun.com