Legg Mason Inc. said yesterday that second-quarter profit rose 23 percent, despite a bumpy stock market and a poor showing by its investment banking unit.
The Baltimore-based brokerage and asset management firm made $37.2 million in the quarter that ended Sept. 30, marking the third-highest quarterly profit in its 101-year history.
The company made 55 cents per diluted share in the quarter, up 19.6 percent, compared with 46 cents per diluted share in the 1999 period. Net revenue rose 17.9 percent to $329.9 million, up from $279.9 million a year earlier.
Nevertheless, Legg Mason's profit was sharply below Wall Street's consensus of 60 cents per share, according to three analysts surveyed by Zacks Investment Research.
"I think the consensus was created in a vacuum based on unrealistic expectations, especially in investment banking," said Michael Flanagan, an independent brokerage industry analyst at Financial Service Analytics Inc. in Philadelphia. "From a long-term perspective, the quarter's results were just fine."
Shares of Legg Mason jumped $2.125 a share to close at $52.375.
Raymond A. "Chip" Mason, Legg Mason's chairman and chief executive, said he was disappointed with the investment banking unit's performance.
It brought in $10.1 million in revenue in the quarter, down 24.6 percent from the quarter a year earlier. It was the worst performance for the unit in five years.
"Everything else I was thrilled with," Mason said. "The fact that we are up 20 percent with a weak quarter in that area shows the overall strength of our business."
While investment banking represented just 6.7 percent of Legg Mason's net revenue, Mason believes that it is an important service for clients. He said the company will keep building the unit.
Despite the investment banking division's lackluster performance, there were highlights in other areas of the company.
Assets under management soared 41 percent to $133.8 billion, from $94.9 billion a year earlier. Since June, assets under management increased by $7.2 billion, or 6 percent, despite the volatility in the stock market.
"That is mind-boggling," Mason said.
Investment advisory fees rose 23.2 percent to $164.6 million from $133.6 million a year earlier. Revenue generated from the company's brokerage business was up 16 percent to $116.9 million.
In the first six months of the company's fiscal year, Legg Mason made $77.6 million, up 19.3 percent, compared with $65 million in the 1999 period. The company made $1.15 per diluted share, compared with 98 cents in the year-earlier period.
`We are in good shape'
Net revenue rose 17.3 percent to $673 million, compared with $573.7 million in the corresponding period a year earlier.
"If this is as bad as it gets, we are in good shape," Mason said.