Even as Legg Mason Inc. reported Wednesday a 64 percent jump in quarterly profit, investors continued to pull money out of the Baltimore money manager's funds.
The company has struggled with fund outflows in the past two years amid the financial crisis and underperformance of its mutual products. In its fiscal second quarter ending Sept. 30, clients withdrew $12.7 billion from its stock, bond and money market funds.
Legg Chairman and Chief Executive Mark R. Fetting said in an interview that the company's strong earnings — its best since December 2007 — resulted in a 50 percent increase in its quarterly dividend to 6 cents per share, but he acknowledged that the company needs to work on reversing the outflows.
"With that progress noted, there is still work to be done, specifically in the area of growing the business and to get the outflows into inflows," Fetting said.
A market rebound in the quarter helped boost assets under management to $673.5 billion, up from $645.4 billion at the end of June. But assets were down 4 percent compared with $702.7 billion in September 2009.
Legg's net income was $75.3 million, or 50 cents per share, in the three months ending Sept. 30, compared with $45.8 million, or 30 cents per share, in the year-ago period.
Revenue rose slightly to $674.8 million on higher performance fees, from $659.9 million in the year-ago period.
The company has been working to strengthen its balance sheet and improve its profit margin. To that end, Legg announced "streamlining" efforts earlier this year, resulting in 350 back-office job cuts — 250 of them in Owings Mills and Baltimore.
Those efforts began July 1 and are on target to save $140 million annually by March 2012. Employees affected by the job cuts won't start losing jobs until the end of the year.
"Coming out of the crisis, we had to work to do on the balance sheet and in improving our business model and producing better earnings," Fetting said. "We're on track and now, as appropriate with any turnaround, we have to hit the final run and get back to growth. That's what we're intending to do."
The outflows in the fiscal second quarter were less than the $23.1 billion investors took out from its fund during the previous quarter.
In the second quarter, clients took out $4.4 billion from Legg's stock funds; $300 million from money market funds; and $8 billion from fixed-income bonds, which was a particular disappointment for analysts.
A majority of the withdrawals from its Western Asset fixed-income subsidiary stemmed from one global sovereign product and a subadvisory account, whose client is taking its funds in-house, Fetting said.
"Bottom line is that it still seems as though [Legg Mason] has a ways to go before sustainable inflow trends are realized," Douglas Sipkin, an analyst at Ticonderoga Securities, wrote in a research note.
Legg Mason shares fell 52 cents, or 1.7 percent, to close at $30.58 on Wednesday.
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