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T. Rowe Price (TROW) Q2 Earnings Disappoint; Costs Rise
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T. Rowe Price Group, Inc. (TROW - Free Report) reported second-quarter 2016 net income of 76 cents per share, missing the Zacks Consensus Estimate of $1.13. Moreover, the reported figure decreased from the year-ago earnings of $1.24.
Notably, results included a non-recurring operating charge associated with the compensation to certain clients in relation to the Dell appraisal rights matter which reduced reduced net income by 39 cents per share.
Increase in assets under management (AUM) was a positive factor while decline in revenues and elevated operating expenses were the negatives.
Net income came in at $283.5 million compared with $507.8 million in the comparable prior-year quarter.
In the second quarter, net revenue fell 3% to $1.04 billion from $1.07 billion in the year-ago quarter. The fall was primarily due to lower investment advisory fees that dipped 2% year over year to $920.6 million. Net revenue also missed the Zacks Consensus Estimate of $1.05 billion.
Distribution and servicing fees declined 7.8% to $35.6 million. Additionally, administrative fees decreased 3.4% year over year to $88.5 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the U.S. inched down 2% year over year to $669.1 million. Investment advisory revenues earned from other investment portfolios managed by the company decreased 3% from the year-ago quarter to $251.5 million.
Total operating expenses rose 34.8% year over year to $761.2 million in the quarter. The increase mainly stemmed from a non-recurring charge and a 25.5% year-over-year increase in other operating expenses. Moreover, compensation and related costs also spiked.
T. Rowe Price expects total advertising and promotion costs to be on par with the 2015 level in 2016 as well.
As of Jun 30, 2016, T. Rowe Price employed 6,213 associates, 2.6% higher than last year.
Strong Assets Position
As of Jun 30, 2016, total AUM increased 1.8% to $776.6 billion from $763.1 billion as of Dec 31, 2015. During the quarter, market appreciation, net of income, came in at $14.7 billion, while net cash outflow was $2.7 billion after client transfers.
T. Rowe Price remains debt-free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $2.1 billion, which help the company to keep on investing.
Capital Deployment Activity
During first-half 2016, T. Rowe Price repurchased 3.6 million shares of its common stock for $244 million and utilized the available cash balance by investing $79.2 million in capitalized technology and facilities.
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 considerable long-term upside potential based on its disciplined risk-aware investment approach, which focuses on diversification, stability in style and fundamental research.
Our Viewpoint
T. Rowe Price’s financial stability has the potential to gain 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 make us confident of its strong fundamentals. Moreover, a relatively better mutual fund performance is a positive.
However, higher operating expenses, declining revenues and stringent regulatory norms remain the primary woes.
Currently, T. Rowe Price carries a Zacks Rank #3 (Hold).
Among other investment managers, Legg Mason Inc. is scheduled to release June quarter-end earnings results on Jul 27, while Franklin Resources, Inc. (BEN - Free Report) and Invesco Ltd. (IVZ - Free Report) will be releasing theirs on Jul 28.
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T. Rowe Price (TROW) Q2 Earnings Disappoint; Costs Rise
T. Rowe Price Group, Inc. (TROW - Free Report) reported second-quarter 2016 net income of 76 cents per share, missing the Zacks Consensus Estimate of $1.13. Moreover, the reported figure decreased from the year-ago earnings of $1.24.
Notably, results included a non-recurring operating charge associated with the compensation to certain clients in relation to the Dell appraisal rights matter which reduced reduced net income by 39 cents per share.
Increase in assets under management (AUM) was a positive factor while decline in revenues and elevated operating expenses were the negatives.
Net income came in at $283.5 million compared with $507.8 million in the comparable prior-year quarter.
Revenue Falls with Rise in Expenses
In the second quarter, net revenue fell 3% to $1.04 billion from $1.07 billion in the year-ago quarter. The fall was primarily due to lower investment advisory fees that dipped 2% year over year to $920.6 million. Net revenue also missed the Zacks Consensus Estimate of $1.05 billion.
Distribution and servicing fees declined 7.8% to $35.6 million. Additionally, administrative fees decreased 3.4% year over year to $88.5 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the U.S. inched down 2% year over year to $669.1 million. Investment advisory revenues earned from other investment portfolios managed by the company decreased 3% from the year-ago quarter to $251.5 million.
Total operating expenses rose 34.8% year over year to $761.2 million in the quarter. The increase mainly stemmed from a non-recurring charge and a 25.5% year-over-year increase in other operating expenses. Moreover, compensation and related costs also spiked.
T. Rowe Price expects total advertising and promotion costs to be on par with the 2015 level in 2016 as well.
As of Jun 30, 2016, T. Rowe Price employed 6,213 associates, 2.6% higher than last year.
Strong Assets Position
As of Jun 30, 2016, total AUM increased 1.8% to $776.6 billion from $763.1 billion as of Dec 31, 2015. During the quarter, market appreciation, net of income, came in at $14.7 billion, while net cash outflow was $2.7 billion after client transfers.
T. Rowe Price remains debt-free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $2.1 billion, which help the company to keep on investing.
Capital Deployment Activity
During first-half 2016, T. Rowe Price repurchased 3.6 million shares of its common stock for $244 million and utilized the available cash balance by investing $79.2 million in capitalized technology and facilities.
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 considerable long-term upside potential based on its disciplined risk-aware investment approach, which focuses on diversification, stability in style and fundamental research.
Our Viewpoint
T. Rowe Price’s financial stability has the potential to gain 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 make us confident of its strong fundamentals. Moreover, a relatively better mutual fund performance is a positive.
However, higher operating expenses, declining revenues and stringent regulatory norms remain the primary woes.
T ROWE PRICE Price, Consensus and EPS Surprise
T ROWE PRICE Price, Consensus and EPS Surprise | T ROWE PRICE Quote
Currently, T. Rowe Price carries a Zacks Rank #3 (Hold).
Among other investment managers, Legg Mason Inc. is scheduled to release June quarter-end earnings results on Jul 27, while Franklin Resources, Inc. (BEN - Free Report) and Invesco Ltd. (IVZ - Free Report) will be releasing theirs on Jul 28.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>