UPDATE 2-Legg Mason posts profit but mixed flow picture on turnaround

Fri Jan 31, 2014 11:06am EST

By Ross Kerber
    Jan 31 (Reuters) - Asset manager Legg Mason Inc on
Friday reported a profit in the year-end quarter but also gave a
mixed picture of flows to its funds, highlighting the task its
new chief executive Joseph Sullivan still faces to turn the
company around.
    The results sent shares down 2 percent in morning trading to
$42.42, slightly more than other asset managers. Still, Legg
Mason has far outperformed peers over the twelve months ended
January 30, a period its shares were up 56 percent.
    With $679.5 billion under management at the end of 2013 Legg
Mason remains among the largest fund firms but lost ground
during the financial crisis. The chief issue now is its ability
to attract cash from investors. For the three months ended
December 31 Legg Mason reported a net inflow of $9.9 billion,
reflecting money put into its money-market funds.
    During the quarter, investors also added $700 million to its
bond funds, but withdrew $700 million from Legg Mason's equity
products. The results came as investors are returning to stock
funds that should favor some of the company's equity-heavy
divisions.
    Until Legg Mason can step up its flows, its valuation is 
likely to lag peers, wrote Sandler O'Neill analyst Michael Kim
in a note to investors. He is maintaining his "Hold" rating on
the stock.
    Others said the company deserves more credit considering
other factors like better margins and buybacks that have reduced
the number of Legg Mason shares outstanding. "Margin Expansion,
Lower Sharecount & Flattish Flows is a Victory" was the headline
on a note to investors from International Strategy & Investment
Group analyst Glenn Schorr.
    Sullivan was named Legg Mason's chief executive in February
of 2013 and since then he has wound down or sold smaller
businesses, pushed for new products, and moved to renegotiate
financial arrangements with some of its investment units. Among
its units are the big Western Asset Management  bond division
and its ClearBridge equity shop.
    In an interview on Friday, Sullivan said his work is showing
results, especially compared to past quarters in which Legg
Mason reported steep outflows. "We're clearly making progress in
our flow trajectory, there's no doubt about that," he said.
"It's a significant improvement over the past year."
    For its fiscal third quarter ended Dec. 31, Legg Mason
reported net income of $81.7 million, or 67 cents per share,
compared with a net loss of $453.9 million, or $3.45 per share,
in the same period a year ago, when it took impairment charges. 
  
    Analysts surveyed by Thomson Reuters I/B/E/S, on average,
expected earnings of 66 cents per share in the most recent
quarter.
    Assets under management of $679.5 billion were up from $656
billion at September 30, driven by $13.6 billion in market gains
and foreign exchange factors, and net inflows of $9.9 billion.
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