Lehman Profit Rises; Goldman Drops

Lehman Bros. Holdings Inc. on Tuesday surprised investors with a surge in profit from fixed-income underwriting, while Goldman Sachs Group Inc.’s earnings slumped as its mergers and equities businesses declined.

Lehman posted a 14% gain in second-quarter earnings. Goldman, more than 2 1/2 times Lehman’s market value, dropped 24%.

Revenue from debt underwriting more than doubled at Lehman to $265 million. Goldman, meantime, kept its dominant position in most investment-banking categories in the quarter, including advising on mergers and acquisitions and underwriting new stock sales. Those markets shrank in the period, though, as a drop in stocks damped demand for initial stock offerings and mergers.

Lehman’s shares climbed $5.20 to close at $72.50 on the New York Stock Exchange.

Lehman’s net income for the three months ended May 31 rose to $430 million, or $1.38 a share, from $378 million or $1.39 a share, a year ago. The earnings per share results included the cost of a payment on preferred shares to American Express Co., which owned Lehman until 1994. Excluding the preferred share payment, Lehman earned $1.57 a share.

Revenue rose to $2 billion from $1.8 billion.

Lehman was expected to earn $1.14 a share according to the average estimate of 12 analysts surveyed by First Call/Thomson Financial.

Goldman said profit from operations declined to $577 million, or $1.06 a share, from $755 million, or $1.48 a share, in the year-ago period. Revenue dropped to $3.99 billion from $4.15 billion, while investment-banking revenue slumped by more than half to $792 million from $1.59 billion.

Goldman shares fell 47 cents to close at $88.18 on the NYSE.

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Retailer Best Buy Co. said the slowing U.S. economy didn’t drag down fiscal first-quarter profit as much as expected, and earnings this year may exceed analysts’ forecasts if the economy stabilizes.

The biggest U.S. electronics chain said net income in the period ended June 2 declined 24% to $55 million, or 26 cents a share, from $72 million, or 34 cents, a year earlier. Analysts’ average estimate was 23 cents. Sales rose 25% to $3.7 billion.

While consumers cut back on appliance and computer purchases, they splurged on DVDs and digital goods, which have wider profit margins. Best Buy said a pickup in second-half sales may boost annual per-share profit 3 cents to 8 cents higher than analysts’ average estimate.

Best Buy estimates earnings of $2.16 to $2.21 a share this year. Analysts’ average estimate is $2.13. Revenue is forecast to reach $19 billion to $19.5 billion, the company said.

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Pier 1 Imports Inc. said first-quarter net income fell 27% and may decline next quarter as discounting eroded the chain’s profit margin.

Net income fell to $12.3 million, or 13 cents a share, in the quarter ended June 2, from $16.9 million, or 17 cents, a year earlier. Sales rose 9% to $325.4 million.

The Fort Worth-based retailer said it expects second-quarter earnings to be 13 cents to 17 cents. It is forecast to earn 17 cents.