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T. Rowe Price's (TROW) Q1 Earnings Top Estimates, Shares Up

Zacks Equity Research

Following T. Rowe Price Group, Inc.’s TROW first-quarter 2019 earnings release, the company’s shares have rallied 2.1%. The company recorded a positive earnings surprise of 14.7% in the reported quarter. Adjusted earnings per share came in at $1.87, outpacing the Zacks Consensus Estimate of $1.63. Results also improved 7.5% from the year-ago figure of $1.74.

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

Including certain non-recurring items, net income came in at $512.6 million or $2.09 per share compared with $453.7 million or $1.77 per share recorded in the prior-year quarter.

Revenues Decline Y/Y, Expenses Flare Up

Net revenues in the first quarter declined slightly to $1.33 billion from the year-ago quarter. The fall primarily resulted from lower administrative, distribution and servicing fees, mostly offset by higher investment advisory fees. However, the net revenue figure surpassed the Zacks Consensus Estimate of $1.28 billion.

Investment advisory fees inched up 0.4% year over year. However, administrative, distribution and servicing fees declined 4.1% year over year to $133.1 million.

Investment advisory revenues earned from the T. Rowe Price mutual funds, distributed in the United States, were down 2% year over year to $815.9 million. Investment advisory revenues earned from other investment portfolios, managed by the company, increased 6.2% from the prior-year quarter to $378.3 million.

Total adjusted operating expenses flared up 2.1% year over year to $756.6 million in the first quarter. Rise in almost all components of expenses resulted in this upsurge. Including certain one-time items, expenses were $794.8 million, up 6.8%.

Notably, the company expects 2019 adjusted operating expenses in the range of 4-7%.

As of Mar 31, 2019, T. Rowe Price employed 7,102 associates, around 2.4% higher than the last year.

Strong Assets Position

As of Mar 31, 2019, total AUM climbed 6.7% year over year to $1.08 trillion. During the January-March quarter, net market appreciation and income, came in at $114 billion, while net cash inflow was $5.4 billion after client transfers.

T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $4.9 billion as of Mar 31, 2019, which enable the company to keep on investing.

Capital-Deployment Activity

During first-quarter 2019, T. Rowe Price repurchased 2.5 million shares of its common stock for $229.8 million, and invested $47.7 million in capitalized technology and facilities using available cash balances.

For 2019, the company projects capital expenditures to be approximately $200 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. Furthermore, a relatively better mutual fund performance is a positive.

Nonetheless, higher operating expenses and lower revenues 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, Blackstone BX reported first-quarter 2019 distributable earnings of 44 cents, lagging the Zacks Consensus Estimate of 52 cents. However, the figure reflects improvement from 41 cents earned in the prior-year quarter. Results reflected higher revenues and growth in AUM. However, higher expenses acted as a headwind.

BlackRock’s BLK first-quarter adjusted earnings of $6.61 per share surpassed the Zacks Consensus Estimate of $6.20. Results benefited from a decline in expenses and higher AUM. However, lower revenues acted as a headwind.

Franklin Resources, Inc. BEN will release its quarterly numbers on Apr 26.

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