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Legg reports 10 percent increase in quarterly profit

Legg Mason Inc. posted a 10 percent increase in quarterly profit on Tuesday as it lowered operating expenses as part of a just-completed cost-cutting initiative.

The Baltimore money manager earned $76.1 million, or 54 cents a share, in its fiscal fourth quarter ending March 31, up from $69 million, or 45 cents a share, a year ago. Legg beat expectations of 47 cents a share, according to a Bloomberg poll of 15 analysts.

Legg shares fell 71 cents, or 2.7 percent, to close at $25.36 Tuesday.

The company has completed a restructuring effort designed to save $140 million annually. The initiative resulted in 350 job cuts over the past two years, most of them in Owings Mills and Baltimore. During the quarter, Legg saw $35 million in cost savings.

Operating expenses fell to $576.4 million from $614.3 million, which offset a revenue decline in the quarter.

Revenue was $648.6 million, down from $713.4 million.

With its restructuring efforts in the "rear-view mirror," Legg Chairman and CEO Mark R. Fetting said, the company was focused on increasing its business.

Boosted by the market recovery, Legg's assets under management rose to $643.3 billion in the quarter, up from $627 billion at the end of last year.

The company, however, continued to see clients withdraw money from its mutual funds and other investments, with a net outflow of $4.9 billion.

Stock withdrawals remained flat at $4.9 billion from the previous quarter, while bond withdrawals fell to $2.8 billion from $7.1 billion. Investors put $2.8 billion into money market funds, down from $10.7 billion in the previous quarter.

J. Jeffrey Hopson, an analyst at Stifel Nicolaus, said in a research note that Legg faces macroeconomic challenges as well as its own issues. While the company reported continued stock withdrawals, it also improved on the fixed-income side and saw positive results from the restructuring effort, he said.

"This is another typical quarter for LM where there are signs of progress in some respects but where they cannot get fully over the hump," said Hopson, who lowered his earnings estimate for the company's 2013 fiscal year to $1.97 per share from $2.04.

While the company has yet to reverse the withdrawals that have plagued it for more than four years, Fetting said, investment performance showed consistent improvement.

The company's largest subsidiary, bond manager Western Asset Management, has 91 percent of its fixed-income assets beating benchmarks over a three-year period. Overall, 66 percent of Legg's long-term U.S. mutual funds beat their Lipper category averages over the same three-year period.

"The progress is very encouraging," Fetting said. "Our pipeline [of new business] across our managers has not been as strong in past years as it is today."

Several money management subsidiaries have won billions of dollars in new business in which funds have not arrived yet. They include $4 billion at Western Asset, $1 billion at Brandywine Global, $600 million at ClearBridge Advisors and $260 million at Permal, which invests in hedge funds on behalf of clients.

The company has also launched numerous new products, including a soon-to-be-distributed Permal fund for wealthy U.S. investors.

For the fiscal year ending March 31, Legg earned $220.8 million, or $1.54 a share, compared with a profit of $253.9 million, or $1.63, a year ago.

Also on Tuesday, the company increased its quarterly dividend to 11 cents per share, from 8 cents in the previous quarter.

Hanah.cho@baltsun.com

Copyright © 2015, The Baltimore Sun
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