Legg's earnings leap 89% in quarter

Firm's fiscal-year profit comes in at $4.06 a share, setting another record

May 06, 2004|By Paul Adams | Paul Adams,SUN STAFF

Legg Mason Inc. scooped up billions of dollars in new assets and rode a surging stock market to an 89 percent gain in its fiscal fourth-quarter profit, putting an exclamation point on another record year for the Baltimore-based financial services company.

Analysts said Legg's decade-plus transformation from a regional broker into a diversified asset manager was behind its unexpectedly strong performance - a theme emphasized by company officials in an earnings conference call yesterday.

Fourth-quarter net income climbed to $91.9 million, or $1.21 per share, compared with $48.7 million, or 71 cents per share, in fourth-quarter 2003.

Analysts polled by Thomson Financial had forecast earnings of $1.15 per share.

The strong quarter helped propel Legg to new year-end records in revenue, net income and earnings per share.

For the fiscal year that ended March 31, Legg's profit was $297.8 million, an increase of 56 percent over record earnings of $191 million reported for 2003.

Revenue for the year was $1.9 billion, an increase of 29 percent over 2003. Earnings per share were $4.06, a 46 percent jump from the prior year's record of $2.78.

"Both our quarterly and annual results were our best ever in virtually every metric you can come up with," said Raymond A. "Chip" Mason, Legg's chairman and chief executive officer.

"Once again, the firm's well-balanced revenue stream drove solid results," Daniel C. Goldberg, an analyst for Bear, Stearns & Co., said in a research report.

"We continue to view [Legg Mason] as the most fundamentally sound asset manager within our coverage universe."

Legg has steadily reduced its reliance on brokerage fees, which depend on market performance for growth, and derived greater income from its asset management business, a division that saw pre-tax earnings soar 77 percent to $316.3 million for the year.

Total assets under management climbed $94.2 billion, or 49 percent, to a record $286.4 billion.

Of the total, institutional asset management accounted for 65 percent at year-end, while the mutual fund business was responsible for 23 percent and wealth managers 12 percent.

With assets flowing in, the firm raked in more management fees, which accounted for 63 percent of its net revenue. Income from fees reached a record $1.2 billion, a 42 percent increase from last year.

"What everyone needs to realize is, we have mutual funds, but we are not only a mutual fund company," Mason said. "Our world does not rise and fall on whether the public is buying mutual funds. We designed the business that way intentionally."

The mutual fund business has received much attention in the past year as federal and state investigators have uncovered widespread trading abuses and other scandals that have rocked the industry. Mason said new regulations arising from those investigations will result in higher costs for financial firms and possibly force some smaller fund companies to merge or go out of business.

"The degree of scrutiny that is now expected means that most regulatory staffs [at fund companies] have or are in the process of doubling," he said.

That doesn't mean Legg will be out looking for companies to acquire. Mason said it has become harder to find targets that would add value to the firm's portfolio.

Most likely acquisitions would occur overseas, where Legg is looking to plug holes in its business.

Legg Mason shares fell 8 cents to $90.43 in a day of mixed trading yesterday as investors fretted over a possible interest rate increase later this year.

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