T. Rowe Price's (TROW) Q2 Earnings Improve, Costs Flare Up

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T. Rowe Price Group, Inc. TROW reported second-quarter 2018 adjusted earnings per share of $1.87, improving 46.1% from the year-ago figure of $1.28. The Zacks Consensus Estimate was $1.80.

Results were driven by higher revenues and assets under management (AUM). However, escalating expenses were a concern.

Including certain non-recurring items, net income came in at $448.9 million or $1.77 per share compared with $373.9 million or $1.50 per share recorded in the prior-year quarter.

Revenues Improve, Expenses Flare Up

Net revenues rose 13.4% to $1.35 billion from the year-ago quarter. The rise primarily stemmed from higher investment advisory fees that grew 16.1% year over year to $1.21 billion. Moreover, the net revenue figure surpassed the Zacks Consensus Estimate of $1.33 billion.

Administrative, distribution and servicing fees declined 6.7% year over year to $130.6 million.

Investment advisory revenues earned from the T. Rowe Price mutual funds, distributed in the United States, were up 12% year over year to $846.9 million. Investment advisory revenues earned from other investment portfolios, managed by the company, rose 26.9% from the prior-year quarter to $367.5 million.

Total adjusted operating expenses flared up 10.1% year over year to $750.3 million in the second quarter. Rise in almost all components of expenses resulted in this upsurge. Including certain one-time items, expenses were $664.0 million, up 10.6%.

As of Jun 30, 2018, T. Rowe Price employed 6,936 associates, around 1% higher than the last year.

Strong Assets Position

As of Jun 30, 2018, total AUM climbed 15.5% year over year to $1.04 trillion. During the April-June quarter, net market appreciation and income, came in at $22.9 billion, while net cash inflow was $7.6 billion after client transfers.

T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $3.2 billion as of Jun 30, 2018, which enable the company to keep on investing.

Capital-Deployment Activity

During second-quarter 2018, T. Rowe Price repurchased 1.3 million shares of its common stock for $136.9 million, and invested $78.6 million during the first half of 2018 in capitalized technology and facilities using available cash balances.

For 2018, the company projects capital expenditures to be approximately $189 million, comprising two-third for technology development.

Our Viewpoint

T. Rowe Price's financial stability has the potential to benefit from growth opportunities in domestic and global AUM. The company's debt-free position, higher return on earnings and improvement in investor sentiment, as a whole, makes us confident of its robust fundamentals, moving ahead. Furthermore, a relatively better mutual fund performance is a positive.

Nonetheless, higher operating expenses remain concerns.

T. Rowe Price Group, Inc. Price, Consensus and EPS Surprise

T. Rowe Price Group, Inc. Price, Consensus and EPS Surprise | T. Rowe Price Group, Inc. Quote

Currently, T. Rowe Price carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Among other investment managers, Federated Investors, Inc. FII and Lazard Ltd. LAZ are scheduled to report June quarter-end results on Jul 26, while Franklin Resources, Inc. BEN will release its quarterly numbers on Jul 27.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: TROW , FII , BEN , LAZ

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