`Solid quarter' at Legg Mason capped with 24% rise in profit

67 cents a share is gleaned from record revenue

May 08, 2002|By William Patalon III | William Patalon III,SUN STAFF

Legg Mason Inc. said yesterday that its fiscal fourth-quarter net income jumped 24 percent, a strong showing that follows its transformation from a regional brokerage house into a national presence in the asset-management business.

"They had a solid quarter," said Bruce Brewington, an analyst who follows asset-management companies with Putnam Lovell Securities in San Francisco. "The [money] flows were exceptional, [and] there was a good, balanced business mix. There was a lot of good news in their quarter."

For its fourth quarter, which ended March 31, Legg Mason reported net earnings of $46.1 million, up 24 percent from the $37.32 million earned in last year's fourth quarter. Earnings per common share were 67 cents, up 22 percent from the 55 cents reported for last year's quarter.

Revenue was a record $395.19 million, a 17 percent jump from the $338.745 million reported for the corresponding period last year. Assets under management -- one of the key benchmarks for the company -- increased to $177 billion, up 27 percent from last year's quarter and up 4 percent since the end of December.

For the fiscal year that ended March 31, Legg Mason posted net earnings of $152.9 million, 2 percent less than in the prior year. Earnings per share declined 3 percent to $2.24. Revenue for the year was a record $1.451 billion, 7 percent more than in the year before.

Legg Mason has long been known as a successful regional brokerage company. In recent years it has diversified into asset management through the acquisitions of specialized investment-management companies such as Private Capital Management LP, Royce & Associates Inc., and Western Asset Management.

In the face of turbulence in the financial markets, Legg Mason's robust fourth-quarter numbers are evidence that the company's diversification strategy is working even better than insiders had expected, said Raymond A. "Chip" Mason, Legg Mason's chairman and chief executive officer.

"Asset management continues to be the primary driver of both our revenues and our profits, with our two most recent acquisitions -- Private Capital Management and Royce -- making an even more meaningful contribution than we had hoped," Mason said.

Private Capital manages money for the wealthy, Royce was known for its high-performance, small-capitalization mutual funds, and Western was one of the top fixed-income managers in the country.

A pure brokerage house relies on the commissions and related fees from securities transactions, which ebb and flow with the stock and bond markets. Asset management -- in which the company manages lump sums on behalf of individual and institutional investors for a fee, typically over longer periods of time -- offers additional, and more stable, revenue.

In addition to running its other businesses, Legg has combined brokerage activities with asset management, which Mason says creates substantial benefits. The brokerage business, and its huge branch network, generates commission revenue and is a good vehicle for gathering assets.

By acquiring the other asset-management businesses, Legg has added revenue while tempering the profit gyrations it would have faced as a pure brokerage business.

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