By controlling costs and adding assets under management, Legg Mason Inc. overcame a rocky stock market to see its fiscal first-quarter earnings soar 39 percent - beating Wall Street's estimates.
In the three months that ended June 30, net income was $49 million, an increase of 39 percent over the $35.4 million earned in the same quarter last year. Net income per diluted share was 71 cents, a jump of 37 percent from the 52 cents per share recorded in fiscal first quarter 2001.
The consensus estimate of analysts was 68 cents per share, according to Thomson Financial/First Call.
"I thought the analysts' estimates were too high when they started off," said Raymond A. "Chip" Mason, Baltimore-based Legg Mason's chairman and chief executive officer. "Then the stock prices started to fall," investors started pulling back and business scandals emerged.
That Legg beat those estimates underscores the success to date of its strategy to turn itself from a regional brokerage house into a top asset manager with nationwide reach and a diversified business, Mason said.
Assets under management - which generate fee income for an investment advisory firm such as Legg - rose by $671 million during the quarter, reaching $177.7 billion as of June 30. That total is up 22 percent during the past year and for the 44th-straight quarter set a record for assets under management.
The crown jewel during this rocky stretch has been Western Asset Management, a fixed-income money manager that benefited tremendously from investors' "flight to quality" away from stocks. Legg said Western has more than $100 billion in assets under management.
Cost controls also helped the earnings jump, Mason said. In the brokerage unit, cost-reduction plans were worked through in the quarters that ended in December and March. That helped reduce operating expenses to 80 percent of revenue in this quarter from 82.9 percent of revenue for the year-ago quarter, the company said. Revenue for the just-completed quarter rose 13 percent to $392.4 million, according to Legg Mason. The company's shares fell 69 cents yesterday to close at $42.69 on the New York Stock Exchange.