T. Rowe Price Group, Inc.
) reported its third-quarter 2013 net income of $1.00 per share,
beating the Zacks Consensus Estimate by a nickel. Moreover, this
significantly outperformed the year-ago earnings of 87 cents.
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The improvement in results was driven by top-line growth, a
strong capital position and improved assets under management
(AUM). However, elevated operating expenses remain a matter of
T. Rowe Price's net income came in at $270.3 million, surging
25.1% from the prior-year quarter income of $216.1 million.
Performance in Detail
Net revenue increased 14.9% to $884.4 million from $769.7 million
in the year-ago period. The rise was primarily due to an increase
in investment advisory fees that climbed 16.2% year over year to
$768.3 million. Moreover, net revenue outpaced the Zacks
Consensus Estimate of $870.0 million.
Administrative fees also increased 2.4% year over year to $85.4
million. Distribution and servicing fees escalated 25.0% year
over year to $30.5 million. However, net revenue of the savings
bank subsidiary registered a sharp decline of 60.0% year over
year to $0.2 million.
Investment advisory revenues, earned from the T. Rowe Price
mutual funds distributed in the U.S. jumped 18% year over year to
$541.3 million. Investment advisory revenues earned from other
investment portfolios managed by the company increased 11.7% from
the year-ago quarter to $227.0 million.
Total operating expenses climbed 11.6% year over year to $458.5
million in the quarter. The increase was primarily attributable
to high distribution and servicing costs, which grew 25.0% year
over year, increased depreciation and amortization expense,
elevated compensation and related costs along with escalated
occupancy and facility costs.
Notably, to expand international facilities along with the update
of its technology capabilities to fulfill increasing business
demands, T. Rowe Price incurred additional costs. The company
expects these costs to mount in fourth-quarter 2013 around 10%
sequentially as two new buildings located at its Owings Mills,
Md. campus are under service.
As of Sep 30, 2013, T. Rowe Price employed 5,554 associates, 4.4%
higher than last year.
Total AUM increased 5.4% to $647.2 billion as of Sep 30, 2013
from $614.0 billion in the prior quarter. During the quarter,
market appreciation and income came in at $40.6 billion,
partially offset by net cash outflows of $7.4 billion.
T. Rowe Price remains debt-free with substantial liquidity,
including cash and sponsored portfolio investment holdings of
about $3.0 billion, which support the company's ability to
continue investing in the future periods. This compares favorably
with the prior-quarter figure of $2.7 billion. The company had
$1.2 billion in operating cash flow for the nine months ended Sep
30, 2013, up 39.5% year over year.
Capital Deployment Activity
T. Rowe Price is expecting capital expenditures in 2013 to be
approximately $120 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, 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 #2 (Buy).
Among other investment managers,
Legg Mason Inc.
) is scheduled to report September quarter end results on Oct 25,
Ameriprise Financial, Inc.
) on Oct 29 and
) on Oct 31.