T. Rowe Price Beats Q4 Earnings on Solid Top-Line Growth
T. Rowe Price Group, Inc. TROW reported impressive fourth-quarter 2015 results with a positive earnings surprise of 6.4%. The company’s net income of $1.17 per share outpaced the Zacks Consensus Estimate of $1.10. However, the reported figure decreased from the year-ago earnings of $1.18 per share.
Top-line growth and higher assets under management (AUM) led to the better-than-expected results. However, elevated operating expenses remain a concern.
Net income came in at $303.2 million compared with $315.9 million in the prior-year quarter.
For full-year 2015, the company reported net income of $1.22 billion or $4.63 per share as against the prior-year income of $1.23 billion or $4.55 per share. The bottom line also beat the Zacks Consensus Estimate of $4.53 per share.
T. Rowe Price Group Inc. (TROW) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany
Performance in Detail
For full-year 2015, net revenue was $4.2 billion, up 5% year over year. The upside was primarily driven by an increase in investment advisory and distribution and servicing fees. Moreover, net revenue surpassed the Zacks Consensus Estimate of $4.18 billion.
In the fourth quarter, net revenue increased 3% to $1.05 billion from $1.02 billion in the year-ago period. The rise was primarily due to higher investment advisory fees that jumped 4% year over year to $926 million. Net revenue outpaced the Zacks Consensus Estimate of $1.02 billion.
Distribution and servicing fees inched up to $37.3 million. However, administrative fees decreased 4.6% year over year to $88.9 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the U.S. climbed 4% year over year to $668.2 million. Investment advisory revenues earned from other investment portfolios managed by the company increased 2% from the year-ago quarter to $257.8 million.
Total operating expenses rose 10.1% year over year to $597.2 million in the quarter. The increase mainly stemmed from elevated compensation and related costs, which grew 5.6% year over year. Other categories of expenses escalated as well.
T. Rowe Price expects total advertising and promotion costs for 2016 to be at par with the 2015 level.
As of Dec 31, 2015, T. Rowe Price employed 5,999 associates, 1.7% higher than last year.
Assets Position
As of Dec 31, 2015, total AUM increased 2.2% to $763.1 billion from $746.8 billion as of Dec 31, 2014. During the quarter, market appreciation and income came in at $35.1 billion, while net cash inflows were $2.5 billion after client transfers.
T. Rowe Price remains debt-free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $2.8 billion, which support the company’s ability to keep investing in the future. The company had sponsored portfolio investment holdings of $3.4 billion as of Dec 31, 2014.
Capital Deployment Activity
During 2015, T. Rowe Price repurchased 13.1 million shares of its common stock for $988 million and invested $151.3 million in capitalized technology and facilities using available cash balances.
During fourth quarter, T. Rowe Price repurchased 1.9 million shares of its common stock for $136 million.
For 2016, the company expects capital expenditures to be approximately $180 million for property and equipment additions along with technology development.
We believe that despite stiff competition, the company has significant long-term upside potential based on its disciplined risk-aware investment approach, which focus on diversification, consistency in style and fundamental research.
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 strong fundamentals going ahead. Furthermore, a relatively better mutual fund performance is a positive.
However, higher operating expenses and stringent regulatory norms remain concerns.
Currently, T. Rowe Price carries a Zacks Rank #3 (Hold).
Performance of Other Investment Managers
Janus Capital Group, Inc. JNS recorded a positive earnings surprise of 4.17% in fourth-quarter 2015. The company reported earnings per share attributable to common shareholders of 25 cents, ahead of the Zacks Consensus Estimate as well as the prior-year quarter figure by a penny.
Effective cost control led Legg Mason Inc. LM to deliver a positive earnings surprise of 44% in the third-quarter of fiscal 2016 (ended Dec 31). Adjusted earnings of $1.45 per share beat the Zacks Consensus Estimate of $1.01. Moreover, the reported figure came above the year-ago adjusted earnings of 98 cents per share.
Among others, Waddell & Reed Financial, Inc. WDR will report on Feb 2.
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