Legg Mason's 3Q profit rises 69%

Mutual fund assets gained $13.5 billion

stock hits record high

January 22, 2004|By Paul Adams | Paul Adams,SUN STAFF

Money poured into Legg Mason Inc.'s mutual funds during the final three months of 2003, giving the Baltimore firm a 69 percent profit increase for the quarter and sending its shares to a record high.

The company reported yesterday that net income in its fiscal third quarter was $80.8 million, or $1.07 per share, compared with $47.9 million, or 70 cents per share, in the year-earlier quarter. Net revenue rose 37 percent to $506.4 million.

The results beat analysts' estimates of 99 cents per share and sent shares up $4.70, or 5.5 percent, to $89.95 in trading yesterday on the New York Stock Exchange.

"It's yet another record quarter, and there is every reason to believe that Legg Mason's performance can continue to grow stronger," said Michael A. Flanagan, an analyst with Securities Industry Analytics in Oreland, Pa.

Assets in the firm's funds gained $13.5 billion during the quarter, with about half of the increase attributed to the rising stock market and half to the inflow of new money from investors. That pushed Legg's total assets under management to a record $264.9 billion, an increase of 43 percent from the third fiscal quarter last year.

Legg Chairman and Chief Executive Officer Raymond A. "Chip" Mason said the increase in assets was "staggering" and called it "by far our best-ever quarter."

He credited the firm's strategy of diversification and the high performance of its fund managers. The company said 14 of the 21 Legg Mason Funds beat their Lipper averages for 2003.

"Generally improved market conditions are encouraging and our results continue to reflect the balance in our business," Mason said in a conference call with analysts.

William H. Miller III, who manages Legg's flagship Value Trust fund, continued to draw new money. The fund, which has nearly $14 billion in assets, beat the Standard & Poor's 500 index for the 13th consecutive year with a gain of 44 percent.

Investment advisory fees soared to $326.5 million, an increase of 51 percent from the same quarter in 2002, Legg said. Analysts pondered whether the firm could continue to grow at its current pace, especially as it gets larger.

"It's hard to keep posting incredible jumps all the time," said Nataly Frankel, an analyst with Sidoti & Co. in New York. "But on the other hand, I wasn't expecting the jumps that they've managed to post in the last couple of quarters."

Federal investigations into the mutual fund industry are taking their toll on Legg and other fund management firms. The firm said "other expenses," which include legal costs and consulting fees, increased by $16.6 million from the previous year.

"I think what you're seeing is a lot of brokers, a lot of asset managers, they're just going to have more costs," Frankel said. "They're going to need more compliance, they're going to need more lawyers following what they're doing. I don't think it's out of the ordinary."

Legg revealed in November that it faced a fine of $2.3 million from the Securities and Exchange Commission for failing to give some customers discounts on large purchases of a certain class of mutual fund shares. The regulatory action hurt earnings in the recent quarter but is not expected to result in more expenses in the year ahead, company officials said.

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