Legg Mason Fiscal Q3: Profits Up 37% on Fees as Outflows Persist

AUM drops to $671.8 billion from $673.5 billion a year ago for the Baltimore-based asset manager

Asset manager Legg Mason announced Wednesday a 37% jump in profits for the third quarter of 2011, thanks to an increase in fees, but the firm also reported continuing outflows as investors sought to put their money somewhere other than mutual funds.

Profits totaled $61.6 million, or $0.41 per share, compared with $44.9 million, or $0.28, quarterly earnings a year ago. Investors withdrew $12.9 billion from bond funds, $3.3 billion from stock funds and $500 million from money market funds.

In its earnings release for the fiscal third quarter ended Dec. 31, 2010, the Baltimore-based firm said assets under management (AUM) fell to $671.8 billion, from $673.5 billion a year ago. Clients withdrew $16.7 billion, which offset market gains of $14.8 billion.

Fixed income, equity and liquidity outflows were $12.9 billion, $3.3 billion and $0.5 billion, respectively. As of Dec. 31, fixed income represented 53% of AUM, while equity represented 27% and liquidity represented 20%.

Revenues 5% Higher Than a Year Ago

For the third quarter, operating revenues were $721.9 million, up 7% from $674.8 million in the prior quarter, and up 5% from $690.5 million in the prior-year quarter. The higher revenues reflected higher advisory fee yields tied to a more favorable asset mix, the company reported.

Legg Mason on Wednesday also declared a $0.06 per share quarterly cash dividend on its common stock.

Improved operating results for the quarter reflected higher revenues related to a higher advisory fee yield along with stronger performance fees and expense management, said Chairman and CEO Mark Fetting in a statement.

“A progressively healing economy is likely to produce additional market opportunities for investing,” Fetting said. “That said, we are focused on the need

to address persistent outflows at some of our affiliates, and together with our affiliates, we are spending a significant amount of time in front of clients, distribution partners and prospects to address this.”

LM Sees Market Shift Toward Riskier Assets

In the short term, Fetting added, Legg Mason is seeing a shift in the marketplace toward more specialized products with an increased investor appetite for risk assets.

“We are well positioned to take advantage of this through our fixed income, equity and alternative platforms,” he said. “With improved distribution and new product innovation, improving asset mix and higher fee yields we can continue to grow our business. As we enter calendar year 2011, we remain focused on the three key strategic drivers of growth: maintaining and expanding our group of outstanding investment managers, delivering strategic value from our corporate center, and continuing to build a balanced portfolio of affiliates across asset classes, geographies and channels.”

A total of $10.2 million in costs related to a closed-end fund launch reduced earnings per share by $0.14. Legg Mason launched the Western Asset High Yield Defined Opportunity Closed-End Fund, with a total raise of $444 million, the second largest raise to date for Legg Mason. According to the Closed-End Fund Association and SEC filings, Legg Mason was the number one issuer of closed-end funds for 2010, according to the company’s quarterly release.

Read about analysts' expectations for 30% EPS growth at banks this earnings season at AdvisorOne.com.

Read AdvisorOne's 2010 Q4 earnings calendar for the financial sector for release dates and links to earnings stories.

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