Legg's shares tumble 11.8% despite near-record quarter; Analysts wanted more, and profit news hit on a wicked day for stocks


Legg Mason Inc. reported the second-best quarter yesterday in its 100-year history, and its shares promptly tumbled 11.8 percent.

An even better quarter had been predicted by analysts, and "missing the numbers" contributed to the weakness in the company's shares, as did the general sell-off in the stock market.

Legg made $28.3 million in the fiscal second quarter that ended Sept. 30, up 30 percent from the $21.8 million reported for the second quarter last year.

Diluted earnings per share jumped 27 percent to 47 cents in the quarter, compared with 37 cents reported for the year-earlier period.

Analysts had expected Legg's earnings to come in at 52 cents a share, according to Nelson Information.

The company's shares closed yesterday at $33.50, down $4.50. Volume swelled to 786,800 shares, more than six times the daily average.

"I think the big news is Legg Mason missed the numbers which causes swift punishment," said Michael Flanagan, a brokerage analyst at Financial Service Analytics in Philadelphia.

Raymond A. "Chip" Mason, chairman and chief executive officer of the Baltimore-based brokerage and asset management company, said analysts' expectations were too high, even though the company had blown away Wall Street estimates in the first quarter with record profit, revenue and earnings per share.

"Here we come back with the second-best quarter we ever had, and it [the stock price decline] doesn't make any sense," Mason said.

Mason said the sharp decline in Legg's stock also might have been fueled by rumors that the company is moving from the Standard & Poor's Smallcap 600 index to the Standard & Poor's Midcap 400 index.

An S&P; spokeswoman could not confirm or deny the rumors.

"It was a great quarter," Mason said.

"It was particularly great when we had as weak an investment banking quarter that we did and still pull off the second-best quarter we ever had."

Revenue rose 22 percent to $301.6 million in the second quarter, compared with $247.6 million in the year-earlier period. For the first six months of the year, revenue was up 24 percent to $616.2 million.

Profit jumped 32 percent for the first half of the year to $61.1 million, and diluted earnings per share were up 28 percent to $1. Assets under management grew to $95 billion, up from $75 billion for the first half of 1998.

But revenue from Legg's investment banking operations fell 17 percent to $13.5 million in the quarter, compared with $16.2 million in the 1998 quarter.

The earnings "aren't that bad," said Amy S. Butte, an analyst at Bear, Stearns & Co., who noted that investment banking is a small percentage of Legg's overall business.

"I think it is more a matter that analysts had overly high expectations for investment banking results," Flanagan said.

"This is a nine-inning game, and we are just looking at one innning in terms of the earnings shortfall."

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