Despite the recession and a dour stock market, Legg Mason Inc. said yesterday that it made $41.1 million in its fiscal third quarter - the third-best quarterly results in the company's history - and that its assets under management reached record levels.
However, the profit of the Baltimore asset manager and brokerage was essentially the same as last year's: 60 cents per diluted share in the quarter that ended Dec. 31, compared with 61 cents a year earlier.
The results surprised Wall Street analysts, beating their estimates by 6 cents per share, according to Zacks Investment Research.
Legg Mason's net revenue rose 7 percent to $374.8 million, driven by strong gains from investment advisory fees.
"Someone forget to tell Legg Mason that the market is in the middle of a downturn and a recession," said Michael Flanagan, a brokerage analyst at Financial Service Analytics in Philadelphia. "These are excellent results."
Shares of Legg Mason rose $1.05 yesterday to close at $49.75 in trading on the New York Stock Exchange.
"We are obviously pleased with our quarter," Raymond A. "Chip" Mason, chairman and chief executive of Legg Mason, said in a conference call with analysts after the market had closed.
"The real contributor to it was ... the asset management business, which continued to grow. Ultimately, the growth of assets is what the business is all about."
Profit was driven by revenue from fees generated by Legg Mason's growing investment advisory business, which rose 25.6 percent to $208 million in the quarter, compared with $165.6 million a year earlier.
Principal transactions revenue - profit made from selling securities in the firm's inventory to investors - rose 26.3 percent to $37.9 million. And revenue from investment banking rose 55.4 percent to $24.4 million.
But the slumping stock market took its toll on commissions generated by brokers, which sank 12.7 percent to $80.9 million.
While many asset management companies have watched assets pour out their doors, Legg Mason is experiencing the opposite.
Assets under management rose 24 percent in the quarter to $170.1 billion, the 42nd consecutive quarterly increase.
The company said it has benefited from good investment performance and strong cash flows into subsidiary companies, including Royce & Associates Inc. of New York and Private Capital Management LP of Naples, Fla.
The firms were bought by Legg Mason over the past 5 1/2 months.
Total client assets, which include assets in brokerage accounts, stand at $234 billion.
In the first nine months of its fiscal year, Legg Mason made $106.8 million, or $1.57 per diluted share, down 10.1 percent from $118.9 million, or $1.75 per diluted share, a year earlier.
Revenue in the nine-month period rose 3.3 percent to $1.1 billion.
Legg Mason has grown to rely more heavily on its asset management business and less on brokerage commissions, which rise and fall with the market.
The move is paying off, analysts say.
"We have been attempting to get the base of our business so we can take the sharp ups and downs out of our earnings," Mason said.
"The more that we build our fee business, the more we tend to be able to do that."