T. Rowe Price Group Inc.
) second-quarter 2012 net income of 79 cents per share were below
the Zacks Consensus Estimate by a penny. However, earnings compared
favorably to 76 cents reported in the prior-year quarter.
Higher-than-expected top-line growth was a positive for the
quarter. Yet, elevated operating expenses were a dampener.
Net income increased 1% to $206.8 million from $204.7 million in
the year-ago quarter.
Performance in Detail
Net revenue increased 3.2% to $736.8 million from $713.7 million in
the year-ago period. The upsurge was primarily due to an increase
in investment advisory fees that rose 3% year over year to $630.0
million. Yet, net revenue compared unfavorably with the Zacks
Consensus Estimate of $751.0 million.
Administrative fees also increased 3.1% year over year to $82.7
million. Distribution and servicing fees climbed 11.8% y/y to $23.7
million. However, net revenue of savings bank subsidiary declined
33.3% year over year to $0.4 million.
Investment advisory revenues earned from the T. Rowe Price mutual
funds distributed in the U.S., jumped 4% year over year to $434.3
million. Investment advisory revenues earned from other investment
portfolios managed by the company increased 1.1% from the year-ago
quarter to $195.7 million.
Total operating expenses climbed 5.6% y/y to $408.8 million in the
quarter. The increase was primarily attributable to high
distribution and servicing costs (up 11.8% year over year),
depreciation and amortization expense, and compensation and related
costs. Slightly lower advertising and promotion expenditures
reduced expenses in the quarter.
As of June 30, 2012, T. Rowe Price employed 5,265 associates, up
2.3% year over year.
Total assets under management increased to $541.7 billion as of
June 30, 2012, down 2.4% compared with $554.8 billion as of March
31, 2012. Market depreciation of $17.8 billion has mostly offset
the net cash inflows of $4.7 billion in the reported quarter.
T. Rowe Price remains debt-free with substantial liquidity,
including cash and mutual fund investment holdings of about $1.9
billion, which supports the company's ability to continue to invest
in the future periods. As of June 30, 2012, the company had $494.5
million in operating cash flows, including $50 million of
stock-based compensation in 2012 compared with $610.5 million as of
June 30, 2011.
During the second quarter of 2012, the company repurchased 2.2
million shares of its common stock for $129.2 million. Moreover,
the firm invested $36.6 million in capitalized technology and
facilities during the first half of 2012. T. Rowe Price is
expecting capital expenditures for the year 2012 to be
approximately $100 million for property and equipment additions.
T. Rowe Price's financial stability has the potential to take
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 also positive.
However, higher operating expenses and stringent regulatory norms
could be causes for concern.
T ROWE PRICE (TROW): Free Stock Analysis Report
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Shares of T. Rowe Price currently retain a Zacks #3 Rank, which
translates to a short-term Hold rating. Considering the
fundamentals, we also maintain a 'Neutral' recommendation on the
One of T. Rowe Price's peers,
Virtus Investment Partners Inc.
) is expected to report its second quarter 2012 earnings results on
August 1, 2012.