Driven by strong top-line performance,
T. Rowe Price Group, Inc.
) reported its first-quarter 2014 net income of $1.05 per share,
beating the Zacks Consensus Estimate by 3 cents. Moreover, this
significantly outperformed the year-ago earnings of 91 cents.
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Impressive results were driven by top-line growth, a strong
capital position and improved assets under management (AUM).
However, elevated operating expenses remain a headwind.
Including after-tax realized gains of $32.0 million or 7 cents
per share related to the sale of certain T. Rowe Price's
investments in sponsored funds, net income came in at $304.3
million or $1.12 per share.
Performance in Detail
In the first quarter, net revenue increased 17% to $954.6 million
from $815.7 million in the year-ago period. The rise was
primarily due to an increase in investment advisory fees that
jumped 17.6% year over year to $826.4 million. Moreover, net
revenue outpaced the Zacks Consensus Estimate of $941.0 million.
Administrative fees also increased 9.5% year over year to $94.5
million. Distribution and servicing fees escalated 28.6% year
over year to $33.7 million.
Investment advisory revenues, earned from the T. Rowe Price
mutual funds distributed in the U.S. climbed 20% year over year
to $590.8 million. Investment advisory revenues earned from other
investment portfolios managed by the company increased 11% from
the year-ago quarter to $235.6 million.
Total operating expenses climbed 14.1% year over year to $505.5
million in the quarter. The upsurge was mainly attributable to
high distribution and servicing costs, which grew 28.6% year over
year, increased depreciation and amortization expenses, elevated
compensation and related costs along with heightened occupancy
and facility costs.
As of Mar 31, 2014, T. Rowe Price employed 5,692 associates, 5%
higher than last year.
As of Mar 31, 2014, total AUM increased 2.7% to $711.4 billion
from $692.4 billion as of Dec 31, 2013. During the reported
quarter, market appreciation and income came in at $10.2 billion
where as net cash inflows were $8.8 billion, which included $6.0
billion, originated in target-date retirement funds and trusts.
T. Rowe Price remains debt-free with substantial liquidity,
including cash and sponsored portfolio investment holdings of
about $3.4 billion, which support the company's ability to
continue investing in the future periods. This compared favorably
with $3.0 billion as of Dec 31, 2013. The company had $487.1
million in operating cash flow for the quarter ended Mar 31,
2014, up 6% year over year.
Capital Deployment Activity
During first-quarter 2014, T. Rowe Price repurchased 400,000
shares of its common stock worth $31.3 million and invested $25.4
million in capitalized technology and facilities from available
T. Rowe Price is expecting capital expenditures in 2014 to be
approximately $150 million for property and equipment additions.
We believe that despite active competition, the company has a
significant long-term upside potential based on its disciplined
risk-aware investment approach, which focuses on diversification,
consistency in style and fundamental research.
T. Rowe Price's financial stability has the potential to benefit
from the growth opportunities in the domestic and global assets
under management. With a debt-free position, higher return on
earnings and improving investor sentiment witnessed as a whole,
we believe fundamentals will continue to remain strong.
Furthermore, a relative mutual fund performance was a positive.
However, higher operating expenses and stringent regulatory norms
Currently, shares of T. Rowe Price carry a Zacks Rank #3 (Hold).
Among other investment managers,
Ameriprise Financial, Inc.
) is scheduled to report March quarter-end results on Apr 28,
Legg Mason Inc.
) on May 1.