Legg Mason Inc. posted a profit for the second consecutive quarter Thursday, reflecting another sign of recovery for the Baltimore money manager as client redemptions slowed further and its assets under management grew.
Net income in the fiscal second quarter ending Sept. 30 was $45.8 million, or 30 cents per diluted share, compared with a loss of $108.7 million, or 77 cents, in the corresponding period a year ago.
At the time, Legg was struggling to contain hefty costs to support money market funds hurt by investments in soured mortgage-backed securities. Legg returned to profitability during the three months ending June 30, ending five straight quarters of losses.
"We're pleased with our results this quarter and determined to forge on with our turnaround mission at Legg Mason," Legg Chairman and Chief Executive Officer Mark R. Fetting said during a conference call with analysts. "In the first half of our fiscal year, Legg Mason generated strong cash income, improved investment performance and profitability."
For the rest of the year, Fetting said, Legg will work on operating its business efficiently, further strengthening its balance sheet, reducing debt and targeting strategic acquisitions.
The quarter's earnings included $22 million in pre-tax costs related to Legg's equity unit exchange, which was partially offset by $15 million in interest expense reduction from the transaction.
Earnings beat the 22 cents-per-share expectation of 14 analysts surveyed by Bloomberg News. Shares fell $1, or 3 percent, to close at $30.71.
Revenue decreased 32 percent to $659.9 million from a year ago.
Assets under management were $702.7 billion, up from $656.9 billion at June 30. The 7 percent increase was driven by market appreciation, but partly offset by investors withdrawing their money.
Assets were down 17 percent from $841.9 billion a year ago.
Legg clients took out a net $8 billion from its funds, a marked improvement from $30 billion during the three months ending June 30. Clients withdrew $10 billion and $2 billion from fixed-income and equity products, respectively, while investors added $4 billion to money market funds.
Matthew Snowling, an analyst at FBR Capital Markets, maintained his "underperform" rating on Legg but raised the 12-month stock price target to $29, from $24, to reflect the company's improvements.
Still, Snowling wrote in his research report that "much of the earnings improvement recently is largely a result of the market strength."
