November 25, 2008 / 2:57 PM / 12 years ago

UPDATE 2-Eaton Vance net down less than forecast, shares dip

* Shares pare losses after 9 pct drop

* No job cuts planned; analyst says margins may suffer

* CEO says strong fund inflows seen in Nov (Adds CEO, analyst comments, byline)

By Muralikumar Anantharaman

BOSTON, Nov 25 (Reuters) - U.S. asset manager Eaton Vance Corp (EV.N) posted a smaller-than-expected 43 percent drop in quarterly profit on Tuesday, but its shares fell on concerns the financial crisis will narrow future profit margins.

Known for tax-managed and closed-end funds, Eaton Vance said the current quarter started strongly and layoffs were not planned, a comment viewed negatively by some analysts who said margins would suffer if no jobs were cut.

Boston-based Eaton Vance’s giant neighbor Fidelity Investments is cutting about 3,000 jobs through early 2009. Janus Capital Group JNS.N, Legg Mason (LM.N), Putnam Investments, AllianceBernstein Holding (AB.N) and BlackRock Inc (BLK.N) are among other U.S. asset managers slashing jobs.

“There’s probably incremental margin pressure here versus other peers who have made the decision to cut headcount,” said Michael Kim, an analyst at Sandler O’Neill & Partners who describes the outlook for industry fund inflows as “cloudy.”

Net income for the fourth quarter to Oct. 31 fell to $35.0 million, or 28 cents a share, from $61.4 million, or 47 cents a share, a year-earlier.

But excluding unrealized losses and impairment losses on investments, Eaton earned 37 cents a share, according to Reuters Estimates. Analysts on average had expected earnings of 32 cents a share.

Assets under management, the main driver of revenues and profit at money managers, fell 21 percent to $123.1 billion at the end of October from July 31 and was down 24 percent from a year ago.

Net inflows into funds slowed to $300 million in the quarter, against $2.2 billion a year earlier.

Eaton Chairman and Chief Executive Thomas Faust said November is seeing strong inflows. “It’s hundreds of millions of dollars of net flows,” Faust told Reuters in a telephone interview, when asked about the performance of his funds.

Faust said Eaton Vance operates a “lean” organization and it was difficult to justify job cuts when its business was growing. “We had organic growth of about 9 percent over the last year and so it shouldn’t be a surprise that we don’t see a lot of opportunity for cutting staff,” he said.

The company has 1,081 employees.

Eaton Vance shares fell as much as 9 percent to $13.63, before paring losses as the overall stock market staged a rebound. The traded down 21 cents, or 1.4 percent, at $14.76 on the New York Stock Exchange shortly before the close. It is down 68.5 percent this year, underperforming the Standard & Poor’s asset management and custody banks index .15GSPAMCB by 43 percent. (Editing by Jason Szep, Richard Chang)

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