On Tuesday, Baltimore-based money manager Legg Mason Inc. (LM) reported preliminary month-end assets under management (AUM) of $645.4 billion for the month of June 2010.

This was down 1.9% from the AUM at the end of the prior month and down 5.7% from the AUM at the end of March. Legg Mason reported a 1.8% drop in AUM on a year-over-year basis. This represents the second straight month of decline. The AUM at the end of May dropped 4.0% to $657.9 billion.

At the end of June, Legg Mason’s equity AUM totaled $155.8 billion, down 4.4% from May but up 8.5% on a year-over-year basis. Fixed income AUM remained almost flat compared with May but dropped 2.4% year over year.

Total long-term AUM was $513.7 billion at the end of June, down 1.6% from the prior month but up 0.7% year over year. At the end of June 2010, liquidity assets, which are convertible into cash, contracted 3.2% from the prior month end to $131.7 billion. Liquidity assets were, however, down 10.2% year over year.

June results reflect significant liquidity outflows. On an overall basis, outflows continued given the market conditions and returns. However, it is encouraging to note that long-term outflows have moderated in June.

At the end of fiscal fourth quarter (ended Mar 31, 2010), Legg Mason reported $684.5 billion in AUM, up 8.2% on year-over-year from $632.4 billion in March 2009. The increase in AUM was attributable to market appreciation.

At the end of March 2010, the company’s closest competitor BlackRock Inc. (BLK) reported an AUM of $3.36 trillion, up 163% from $1.28 trillion at the end of March 2009. The results substantially surpassed Legg Mason’s AUM for the same period.

Earlier this week, Franklin Resources Inc. (BEN) reported a preliminary month-end AUM of $570.5 billion by the company’s subsidiaries for the month of June, almost flat compared with $572.7 billion in the previous month. AUM for June was, however, up 26.4% on a year-over-year basis.

First Quarter 2011 Guidance

Legg Mason is slated to release its operating results for its fiscal first quarter 2011 ended June 30, 2010 on July 26, 2010, after the market closes. The Zacks Consensus Estimate for the quarter is earnings of 33 cents per share.

Fourth Quarter Earnings

Legg Mason reported fiscal fourth quarter 2010 earnings of 39 cents per share, 4 cents ahead of the Zacks Consensus Estimate, reflecting extensive expense control that led to higher-than-expected operating income. This was coupled with augmented growth in AUM.

Legg Mason also announced a board authorization to repurchase up to $1 billion of common stock, besides undertaking strategic initiatives to drive profitability and growth.

Legg Mason continues to stagger with the after-effects of an acute recessionary environment as most of the company’s business continues to face difficult market conditions. Going forward, management believes the conditions will remain moderately challenging in fiscal 2011 as well.

Nevertheless, management has been able to pave a recovery path for fiscal 2010, after posting five consecutive quarters of net losses, given the early signs of economic recovery and improvement in business sentiments. Moreover, a sound cash position against a risk-free balance sheet provides ample leverage even as Legg Mason seeks to return shareholder value and increase investors’ confidence through its restructuring initiatives and share buyback program.

Currently the stock has a Zacks #3 Rank (Hold), implying no clear directional pressure on the stock over the next one to three months. The stock is also rated Neutral over the long term.
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