Why Is T. Rowe (TROW) Down 5.4% Since Last Earnings Report?
It has been about a month since the last earnings report for T. Rowe Price (TROW). Shares have lost about 5.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is T. Rowe due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
T. Rowe Price's Q2 Earnings Improve, Costs Flare Up
T. Rowe Price reported second-quarter 2018 adjusted earnings per share of $1.87, improving 46.1% from the year-ago figure of $1.28. The Zacks Consensus Estimate was $1.80.
Results were driven by higher revenues and AUM. However, escalating expenses were a concern.
Including certain non-recurring items, net income came in at $448.9 million or $1.77 per share compared with $373.9 million or $1.50 per share recorded in the prior-year quarter.
Revenues Improve, Expenses Flare Up
Net revenues rose 13.4% to $1.35 billion from the year-ago quarter. The rise primarily stemmed from higher investment advisory fees that grew 16.1% year over year to $1.21 billion. Moreover, the net revenue figure surpassed the Zacks Consensus Estimate of $1.33 billion.
Administrative, distribution and servicing fees declined 6.7% year over year to $130.6 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds, distributed in the United States, were up 12% year over year to $846.9 million. Investment advisory revenues earned from other investment portfolios, managed by the company, rose 26.9% from the prior-year quarter to $367.5 million.
Total adjusted operating expenses flared up 10.1% year over year to $750.3 million in the second quarter. Rise in almost all components of expenses resulted in this upsurge. Including certain one-time items, expenses were $664.0 million, up 10.6%.
As of Jun 30, 2018, T. Rowe Price employed 6,936 associates, around 1% higher than the last year.
Strong Assets Position
As of Jun 30, 2018, total AUM climbed 15.5% year over year to $1.04 trillion. During the April-June quarter, net market appreciation and income, came in at $22.9 billion, while net cash inflow was $7.6 billion after client transfers.
T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $3.2 billion as of Jun 30, 2018, which enable the company to keep on investing.
Capital-Deployment Activity
During second-quarter 2018, T. Rowe Price repurchased 1.3 million shares of its common stock for $136.9 million, and invested $78.6 million during the first half of 2018 in capitalized technology and facilities using available cash balances.
For 2018, the company projects capital expenditures to be approximately $189 million, comprising two-third for technology development.
Outlook
T. Rowe Price projects operating expenses to escalate in the 8-11% band in 2018 versus 2017.
The company currently estimates effective tax rate for 2018 in the band of 24-27%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
VGM Scores
At this time, T. Rowe has an average Growth Score of C, however its momentum is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.
Outlook
T. Rowe has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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