Legg Mason's shares rise with its earnings

Asset management firm posts 38% profit increase

October 22, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

Legg Mason Inc. shares rose 11 percent yesterday after the Baltimore-based asset management company reported a 38 percent increase in second-quarter profit.

While many of its competitors have struggled with the lackluster stock market, Legg made $91.7 million in its fiscal second quarter, which ended Sept. 30, compared with $66.6 million a year earlier. Revenue was up 24 percent to $568 million, propelled by gains in fees from its investment advisory business.

Diluted earnings per share rose 30.6 percent to 81 cents in the quarter - the highest in the company's history - compared with 62 cents in the second quarter in 2003.

The results beat Wall Street estimates by 5 cents, according to Nelson Information/ Thomson Financial. Legg shares rose $6.06 to close at $59.70.

"The quarter was very good. It definitely surprised me as to how good the asset management had performed given how turbulent the market was," said Nataly Frankel, an equity analyst at Sidoti & Co. in New York.

Legg's assets under management hit a record $311 billion, up 31 percent from a year earlier. Eighty-three percent of the increase resulted from money flowing into the company, with a growing amount coming from overseas investors. Since June, Legg Mason's assets have risen by $15.3 billion.

"The diversity again made us," said Raymond A. "Chip" Mason, Legg's chairman and chief executive. "We were just able [to grow] because we are diversified. It is not just mutual funds or just institutional. ... I don't think there is another asset manager that has that diversity."

The brunt of Legg's revenue in the quarter came from its large investment advisory business, which brought in $393.9 million, up 40 percent from a year earlier. It represented 69.4 percent of the company's revenue.

Revenue from investment banking fell 20.7 percent in the quarter to $31.1 million, and revenue from retail and institutional securities brokerage, which includes brokerage commissions, was $122.9 million, down 1.7 percent from a year earlier.

Many brokerages have struggled because the stock market has been weak.

"Our brokerage business held up better than virtually anybody I could see," Mason said.

For the first six months of the fiscal year, Legg's profit rose 42.5 percent to $178.1 million, up from $125 million a year earlier. Diluted earnings per share were $1.57, up 33 percent. Revenue for the period totaled $1.1 billion, up 26.5 percent from 2003.

Frankel, the Sidoti analyst, said the biggest challenge Legg faces is to keep its performance strong.

"When you are putting up these numbers ... it becomes expected," Frankel said. "Obviously, asset managers only attract assets if they are putting up good numbers. They have to keep their product at the top."

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