Schwab Nearly Doubles 2nd-Quarter Profit
Charles Schwab Corp. said Friday that its second-quarter profit rose 98% but warned that margins could shrink as it increases spending to keep up with demand for its Internet services.
The discount brokerage said net income rose to $151 million, or 18 cents a share, from $76.3 million, or 9 cents, a year ago, as revenue jumped 53% to $982.1 million, a record. Analysts in a First Call survey expected 17 cents a share.
San Francisco-based Schwab, the largest Internet brokerage, said expenses jumped 43% as it added 1,000 employees and spent $32 million on computers. Schwab suffered eight service outages on its Web trading system in the period, as clients opened a record 422,000 accounts, 9% more than in the first quarter.
The firm added $23 billion in net new assets in the quarter. Although that’s down from $28 billion in the previous period, assets in the last six months rose $100 billion--as much as Schwab added during its first 20 years in business. Daily trades made online rose 46% in the quarter.
The company’s profit margin was more than 15% of net revenue in the second and first quarters, compared with about 13% in 1997 and 1998. Chief Executive Charles R. Schwab warned that margins may fall closer to historical levels in coming periods as expenses rise.
The company spent $54.5 million on advertising and market development in the quarter, double what it spent a year ago. It will spend $400 million in 1999 on ads, new branches and other development projects, up from $300 million in 1998, said Chris Dodds, executive vice president of finance.
Schwab said it opened 19 branches in the last six months to give it 310, and plans 20 to 30 more by year-end.
Schwab shares fell $2.94 to $52.44 on the New York Stock Exchange.
At a Glance
Other earnings, excluding one-time gains and charges unless noted:
* Edison International said its net income fell 12% in the second quarter to $128.4 million, or 37 cents a share, because of an outage at its nuclear plant and start-up costs for newly acquired power plants. The results missed the 40-cent average estimate of eight analysts surveyed by First Call Corp. Revenue rose 9% to $2.12 billion. The Rosemead-based company’s utility, Southern California Edison, had flat profit in the quarter despite higher revenue, because it idled a reactor at its San Onofre nuclear plant for scheduled refueling. At Edison’s power plant unit, higher operating costs outside California reduced profit 71%.
* Newport News Shipbuilding Inc.’s operating profit grew 26% to $20.1 million, or 55 cents a share, as revenue fell 4.7% to $444 million. The maker of nuclear aircraft carriers said profit and revenue grew in its fleet services division. Profit grew but revenue was down in the construction and engineering divisions. The latest quarter excludes a gain of 40 cents a share for a breakup fee and stock options received after its failed bid for Avondale Industries Inc.
