T. Rowe Price Missed Marginally
T. Rowe Price Group, Inc. (TROW) reported its fourth-quarter 2012 net income of 88 cents per share, a penny below the Zacks Consensus Estimate. However, earnings compared favorably with the prior-year quarter earnings of 73 cents.
Elevated operating expenses were the primary reasons for the earnings miss. Yet, top-line growth and increased assets under management (:AUM) were the positives for the quarter.
T. Rowe Price’s net income came in at $232.0 million, surging 23% from the prior-year quarter.
For the full year, net income available to common shareholders stood at $878.1 million or $3.36 per share, up from $769.7 million or $2.92 per share in the prior year. However, full year earnings per share stayed marginally below the Zacks Consensus Estimate of $3.38.
Performance in Detail
Net revenue increased 17.2% to $787.3 million from $671.6 million in the year-ago period. The rise was primarily due to an increase in investment advisory fees that climbed 18.8% year over year to $677.6 million. However, net revenue was below the Zacks Consensus Estimate of $799.0 million.
Administrative fees also increased 4.1% year over year to $83.6 million. Distribution and servicing fees escalated 27.7% year over year to $25.8 million. However, net revenue of the savings bank subsidiary declined 50.0% year over year to $0.3 million.
For the full year, net revenue reached $3.0 billion, up 10.0% from the prior year. Moreover, revenues were almost in line with the Zacks Consensus Estimate.
Investment advisory revenues, earned from the T. Rowe Price mutual funds distributed in the U.S., jumped 20.7% year over year to $472.0 million. Investment advisory revenues earned from other investment portfolios managed by the company increased 14.7% from the year-ago quarter to $205.6 million.
Total operating expenses climbed 12.7% year over year to $426.1 million in the quarter. The increase was primarily attributable to high distribution and servicing costs, which grew 27.7% year over year, depreciation and amortization expense, compensation and related costs and occupancy and facility costs. T. Rowe Price expects its advertising and promotion expenditures for the full year 2013 to be in line with the 2012 levels.
As of Dec 31, 2012, T. Rowe Price employed 5,372 associates, 1.9% higher than the last year.
Assets Position
Total AUM increased to $576.8 billion as of Dec 31, 2012, up 0.4% from $574.4 billion as of Sep 30, 2012. During the quarter, market appreciation and income came in at $6.6 billion, partially offset by net cash outflows of $4.2 billion.
T. Rowe Price remains debt-free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $2.0 billion, which supports the company’s ability to continue investing in the future periods. As of Dec 31, 2012, the company had $948.4 million in operating cash flows.
During 2012, the company repurchased 2.3 million shares of its common stock for $135.2 million. Moreover, the firm invested $76.9 million in capitalized technology and facilities during the same time frame. T. Rowe Price is expecting capital expenditures in 2013 to be approximately $125 million for property and equipment additions.
Our Viewpoint
T. Rowe Price has the potential to take advantage of 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 that the company’s fundamentals will remain strong.
Relative mutual fund performance was positive. However, higher operating expenses and stringent regulatory norms could be the causes of concern.
Among other investment managers, Invesco Ltd. (IVZ) is expected to report its fourth quarter 2012 results on Jan 31, 2013.
Currently, the shares of T. Rowe Price retain a Zacks Rank #3 (Hold). Stocks in the same sector worth considering include BlackRock, Inc. (BLK) and Affiliated Managers Group, Inc. (AMG), both carrying a Zacks Rank #2 (Buy).
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