Legg Mason's earnings zoom 47%

Rising stock market gives brokerage a boost

October 23, 2003|By Paul Adams | Paul Adams,SUN STAFF

A rebounding stock market helped lift Legg Mason Inc.'s income by 47 percent, setting a record as the Baltimore brokerage and money management company raked in more from fees in its fiscal second quarter.

Net income in the quarter that ended Sept. 30 was $66.6 million, up from $45.4 million in last year's quarter. The company also reported record diluted earnings per share, which rose 93 cents, up 41 percent, from 66 cents in the fiscal second quarter last year.

The company's assets have soared this year, and it is among several brokerages that have reported double-digit percentage increases in quarterly earnings as the market has surged. The company's shares rose 24 cents to $76.65 a share yesterday on the New York Stock Exchange.

"If you look at the basics of our business, most of the key things that people are interested in and look at are standing at records," said Raymond A. "Chip" Mason, Legg's chairman and chief executive officer.

Revenue in the quarter climbed a record 25 percent to $457.7 million, and assets under management reached a record $236.9 billion, up 9 percent from $216.6 billion in the previous quarter and 34 percent from assets a year ago.

The results included a $17.5 million charge for litigation related to a copyright case reported this month.

Legg was ordered by a federal jury to pay nearly $20 million to financial newsletter publisher Lowry's Reports Inc. for making unauthorized copies of the publication and distributing it to its staff. The charge reduced earnings per share by 13 cents. Legg is appealing the decision.

The one-time expense was partly offset by a $10.9 million pretax gain from the sale of the company's mortgage-servicing operations, which resulted in a 10-cent increase in earnings per share.

Without those one-time gains and expenses, Legg's net income would have been $68.7 million, 50 percent more than in last year's quarter. The company also began expensing its stock-based compensation during the quarter, which resulted in a 2-cent-a-share reduction in earnings.

"We had a lot to get through this quarter, and we got through it seemingly with still good performance," Mason said of the unusual items.

The company's results improved as investors poured money back into equities, helping boost Legg's investment advisory and other fees for the quarter to $281.8 million, 39 percent more than in last year's quarter. Such fees accounted for 62 percent of the company's consolidated net revenues.

"The reasons for this stellar performance didn't just occur in the past year or the past quarter," said Michael A. Flanagan, an analyst with Securities Industry Analytics in Philadelphia. "This performance has been 15 years in the making, when Chip Mason determined that Legg Mason was going to be an asset manager with a brokerage capability."

Legg's shares have gone up 129 percent since 1998, Flanagan said, compared with an average of 54 percent for the 15 brokerage and asset management businesses he follows. Legg shares are up 49 percent this year, he said, compared with 26 percent for its key competitors.

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