Legg Posts 1st Profit In 6 Quarters

July 21, 2009|By Hanah Cho | Hanah Cho,hanah.cho@baltsun.com

Legg Mason Inc. announced Monday a profit for the three months ending June 30, reversing five straight quarterly losses as a market rebound, lower operating costs and improved performance of its key mutual funds helped the Baltimore money manager.

Net income was $50.1 million, or 35 cents per diluted share, compared to a net loss of $36.1 million, or 26 cents per diluted share, in the corresponding period last year.

"While our mission is not fully accomplished, we are pleased to return Legg Mason to profitability," Chief Executive Officer and Chairman Mark R. Fetting told analysts during a conference call. "This reflects a good start to the year. ... There is, of course, room for improvement."

Shares rose 73 cents, or 3 percent, to close at $24.94. Earnings were released after the market closed. Legg's stock was up 6 percent in after-hours trading.

Legg had struggled since November 2007 with costs to prop up its money market funds invested in toxic securities, resulting in heavy losses in the past five quarters. Legg wiped out the last of the so-called structured investment vehicles from its money funds in March. SIVs issue debt, some backed by mortgage-linked securities, that had plummeted in value amid the credit turmoil.

Performance improved in the quarter for key managers, including Bill Miller, whose signature Value Trust and Opportunity Trust funds saw double-digit returns.

Legg said net outflows slowed in the fiscal first quarter, with investors pulling $30 billion out of funds. That's compared with $43.5 billion in the fiscal fourth quarter.

The company said it saw net inflows in May and June.

Revenue dipped 42 percent to $613.1 million in the fiscal first quarter, from $1.05 billion in the same period last year.

The recent market rally helped Legg's assets under management climb 4 percent to $656.9 billion, from $632.4 billion at March 31. But assets were down 29 percent from $922.8 billion at June 30, 2008.

Operating costs fell 33 percent to $554.8 million, from $825.1 million in the same period last year.

Since last year, Legg has been cutting costs, including employees, to compensate for the volatile market and its poor financial performance. Legg said it has reduced costs by $160 million as of June 30.

Morningstar analyst Alan Rambaldini said it's too early to say whether Legg has turned a corner on its struggles. But he said there were positive signs.

"If they could get the outflows to continue to slow down, as they have in the past quarter, that's going to help a lot," Rambaldini said. "Their expenses are getting to the point where they are more in line with the reduced revenues."

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