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T. Rowe Price's (TROW) Q2 Earnings Top Estimates, Revenues Up

Zacks Equity Research

T. Rowe Price Group, Inc. TROW reported a positive earnings surprise of 6.3% in second-quarter 2019. Adjusted earnings per share came in at $2.03, outpacing the Zacks Consensus Estimate of $1.91. Results also improved 14.7% from the year-ago figure of $1.77.

Results were driven by higher assets under management (AUM) and revenues. However, escalating expenses was an undermining factor.

Including certain non-recurring items, net income came in at $527.5 million or $2.15 per share compared with $448.9 million or $1.77 per share recorded in the prior-year quarter.

Revenues Up Y/Y, Expenses Flare Up

Net revenues in the second quarter escalated 3.7% to $1.4 billion from the year-ago quarter. This upside primarily resulted from higher investment advisory fees, partly offset by lower administrative, distribution and servicing fees. The net revenue figure came in line with the Zacks Consensus Estimate.

Investment advisory fees climbed 4.6% year over year. However, administrative, distribution and servicing fees declined 4.3% year over year to $125 million.

Investment advisory revenues earned from the T. Rowe Price mutual funds, distributed in the United States, were up 1.6% year over year to $860.7 million. Investment advisory revenues earned from other investment portfolios, managed by the company, increased 11.4% from the prior-year quarter to $409.5 million.

Total adjusted operating expenses flared up 2.6% year over year to $764.6 million in the second quarter. Rise in almost all components of expenses resulted in this upsurge. Including certain one-time items, expenses were $780.1 million, up 4%.

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

As of Jun 30, 2019, T. Rowe Price employed 7,225 associates, around 3.5% higher than the last year.

Strong Assets Position

As of Jun 30, 2019, total AUM climbed 7.7% year over year to $1.13 trillion. During the April-June quarter, net market appreciation and income, came in at $41 billion, while net cash inflow was $2.5 billion after client transfers.

T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $5.2 billion as of Jun 30, 2019, which enable the company to keep on investing.

Capital-Deployment Activity

During second-quarter 2019, T. Rowe Price repurchased 1.6 million shares of its common stock for $163.8 million, and invested $94.5 million in capitalized technology and facilities using available cash balances in the first six months of 2019.

For 2019, the company projects capital expenditures to be approximately $200 million, comprising two-third for technology development.

Our Viewpoint

T. Rowe Price witnessed an impressive quarter with escalating revenues. The company’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 are a concern.

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. price-consensus-eps-surprise-chart | T. Rowe Price Group, Inc. Quote

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

Among other investment managers, Blackstone BX reported second-quarter distributable earnings of 57 cents, beating the Zacks Consensus Estimate of 50 cents. Moreover, the figure reflected improvement from 56 cents earned in the prior-year quarter. Results benefited from growth in AUM and lower expenses. However, a decline in revenues acted as a headwind.

BlackRock, Inc.’s BLK second-quarter adjusted earnings of $6.41 per share lagged the Zacks Consensus Estimate of $6.52. Moreover, the figure was 3.8% lower than the year-ago quarter’s number. Results were hurt by a decline in revenues along with higher expenses. Nevertheless, growth in AUM supported results to some extent.

Franklin Resources, Inc. BEN will release its quarterly numbers on Jul 30.

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