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T. Rowe Price's (TROW) Q4 Earnings Lag, Revenues Up Y/Y

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T. Rowe Price Group, Inc.TROW reported negative earnings surprise of 14.2% for fourth-quarter 2016. Adjusted earnings per share of $1.21 missed the Zacks Consensus Estimate of $1.41. However, the bottom line improved 13.1% from the year-ago figure of $1.07.

Lower-than-expected results highlighted elevated operating expenses. However, top-line growth and higher assets under management (AUM) remained positives.

Including certain non-recurring items, net income came in at $379.8 million or $1.50 per share compared with $303.2 million or $1.17 per share in the prior-year quarter.

For full-year 2016, the company reported adjusted net income of $1.15 billion or $4.49 per share as against the year-ago income of $1.16 billion or $4.39 per share. The bottom line, however, lagged the Zacks Consensus Estimate of $4.95 per share.

Revenue Growth Displayed; Expenses Flare Up

For full-year 2016, net revenue was $4.2 billion, up slightly year over year. The upside was primarily driven by an increase in investment fees. Moreover, net revenue was almost in line with the Zacks Consensus Estimate.

Net revenue rose 3.7% to $1.09 from the year-ago quarter. The rise was primarily due to higher investment advisory fees that grew 4.4% year over year to $966.8 million. However, net revenue lagged the Zacks Consensus Estimate of $1.10 billion.

Distribution and servicing fees declined 4.8% to $35.5 million. Additionally, administrative fees remained stable at $88.9 million on a year-over-year basis.

Investment advisory revenues earned from the T. Rowe Price mutual funds, distributed in the U.S., were up 4.9% year over year to $700.7 million. Investment advisory revenues earned from other investment portfolios, managed by the company, rose 3.2% from the prior-year quarter to $266.1 million.

Total adjusted operating expenses were up 4.8% year over year to $626 million in the quarter. Including certain one-time items, net of insurance recovery, associated with the Dell appraisal rights matter, expenses were $527.9 million, down 11.6%.

As of Dec 31, 2016, T. Rowe Price employed 6,329 associates, 5.6% higher than last year.

Strong Assets Position

As of Dec 31, 2016, total AUM climbed 6.3% year over year to $810.8 billion. During the quarter, net market appreciation and income, came in at $2.9 billion, while net cash outflow was $5.0 billion after client transfers.

T. Rowe Price remains debt-free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $1.9 billion as of Dec 31, 2016, which assist the company to keep on investing.

Capital Deployment Activity

During 2016, T. Rowe Price repurchased 10 million shares of its common stock for $676.9 million and invested $148.3 million in capitalized technology and facilities using available cash balances.

During the fourth quarter, T. Rowe Price repurchased 2.0 million shares of its common stock for $130 million.

For 2017, the company projects capital expenditures to be approximately $175 million, comprising two-third for technology development.

Our Viewpoint

T. Rowe Price's financial stability has the potential to benefit from growth opportunities in the 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, going ahead. Furthermore, a relatively better mutual fund performance is a positive.

However, higher operating expenses and stringent regulatory norms 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 #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Among other investment managers, Franklin Resources, Inc. BEN , Legg Mason, Inc. LM and Lazard Ltd LAZ are scheduled to report December quarter-end results on Jan 27, Feb 1 and Feb 2, respectively.

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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.


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

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