Legg Mason Sees Profit Above Estimates on Performance Fees

Jan 13, 2014 4:52 pm ET

(Updates with closing share price in fifth paragraph.)

Jan. 13 (Bloomberg) -- Legg Mason Inc., the money manager seeking to reverse five straight years of redemptions, said it expects to post higher-than-expected net income in the fiscal third quarter after assets and fees tied to performance rose.

Legg Mason said net income in the three months ended Dec. 31 will increase to between $79 million and $83 million, or 65 cents to 68 cents per diluted share, compared with a loss in the year-earlier period, according to a statement from the Baltimore-based firm. Before today’s announcement, Legg Mason was expected to earn net income of 60 cents per share in the fiscal third quarter, according to 12 analysts surveyed by Bloomberg.

Joseph A. Sullivan, who was named chief executive officer in February, has reorganized businesses to cut costs while vowing to stem withdrawals by focusing on Legg Mason’s product lineup and improving performance. Legg Mason’s expected earnings in the quarter include about $48 million to $52 million in performance fees, earned for beating certain benchmarks, compared with $17 million in the prior quarter. Assets rose 3.7 percent from the prior quarter to $680 billion.

“With the strength in the equity markets in the quarter, the value of assets would also be up,” Jason Weyeneth, an analyst in New York with Sterne, Agee & Leach Inc., said in a telephone interview. “The performance fees were certainly a piece of it.”

Investor Deposits

Legg Mason fell 1.3 percent to close at $43.26 in New York. The shares increased 63 percent in the past 12 months as the Standard & Poor’s 20-member index of asset managers and custody banks increased 34 percent.

Legg Mason said investors put $10 billion into cash funds and $700 million into fixed income products in the quarter, while removing about $700 million from equity funds.

Earnings in the quarter ended Dec. 31 will include a higher-than-expected effective tax rate, increased severance and other operating expenses following consolidation and a $5 million charge related to the firm’s acquisition of fund-of- hedge-funds unit Fauchier Partners, according to the statement. The expected results for the quarter ended Dec. 31 were announced in connection with a potential refinancing of all or a portion of a currently outstanding bank loan.

Legg Mason had a loss of $453.9 million, or $3.45 a share, in the three months ended Dec. 31, 2012, after client withdrawals and declining assets prompted the firm to write down the value of its holdings.

--Editors: Sree Vidya Bhaktavatsalam, Josh Friedman