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T. Rowe Price's (TROW) Q3 Earnings Miss, Revenues Rise
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T. Rowe Price Group, Inc. (TROW - Free Report) reported negative earnings surprise of 2.5% for third-quarter 2016. Adjusted earnings per share of $1.17 missed the Zacks Consensus Estimate of $1.20. However, the bottom line improved 10% from the year-ago earnings of $1.06.
Result excludes higher non-operating income associated with implementation of new accounting guidance in Jan 2016, related to the consolidation of certain sponsored investment portfolios.
Shares of T. Rowe Price declined more than 3% in the beginning of the trading session today, reflecting investors’ concern on higher expenses. However, the price reaction during full trading session will give a better idea.
Increase in net revenue and assets under management (AUM) were the positive factors, while elevated operating expense was the downside.
Net income came in at $299.9 million, up 8% from the prior-year quarter.
Revenue & Expenses Rise
Net revenue rose 4% to $1.09 from the year-ago quarter. The rise was primarily due to higher investment advisory fees that grew 5% year over year to $970.5 million. Net revenue also outpaced the Zacks Consensus Estimate of $1.07 billion.
Distribution and servicing fees declined 3.7% to $36.7 million. Additionally, administrative fees decreased 2.9% year over year to $85.7 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds, distributed in the U.S., were up 5% year over year to $703.5 million. Investment advisory revenues earned from other investment portfolios, managed by the company, increased 6% from the year-ago quarter to $267 million.
Total operating expenses rose 4% year over year to $617.2 million in the quarter. The rise was mainly driven by increase in all components, except distribution and servicing costs.
As of Sep 30, 2016, T. Rowe Price employed 6,239 associates, 4% higher than last year.
Strong Assets Position
As of Sep 30, 2016, total AUM increased 12% year over year to $812.9 billion. During the quarter, net market appreciation and income, came in at $36.5 billion, while net cash outflow was $0.2 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 as of Sep 30, 2016, which help the company to keep on investing.
Capital Deployment Activity
During the first nine months of 2016, T. Rowe Price repurchased 8 million shares of its common stock for $546.9 million and utilized the available cash balance by investing $112.5 million in capitalized technology and facilities.
For 2016, the company expects capital expenditures to be approximately $165 million, comprising two-third for technology development.
Our Viewpoint
With its financial stability T. Rowe Price has the potential to gain from growth opportunities in domestic and global AUM. The company’s debt-free position and higher return on earnings should strengthen its financials.
However, higher operating expenses and stringent regulatory norms remain primary concerns.
SEI Investments Co. (SEIC - Free Report) reported earnings per share of 53 cents that outpaced the Zacks Consensus Estimate by 4 cents. Moreover, the bottom line improved 13% from the prior-year quarter tally of 47 cents.
Higher revenues and income from operations, along with improvement in asset position, aided the better-than-expected results. On the down side, the quarter witnessed an increase in expenses.
Janus Capital Group, Inc.’s reported adjusted earnings per share of 24 cents, beating the Zacks Consensus Estimate by a penny. Moreover, the bottom line improved 9.1% from the prior-year quarter.
Though the company outperformed the Zacks Consensus Estimate for earnings, we remain apprehensive due to declining revenues. However, the decline in operating expenses is a consequence of prudent expense management. Moreover, increase in AUM was another positive.
Franklin Resources, Inc. (BEN - Free Report) reported earnings per share of 82 cents, handily beating the Zacks Consensus Estimate of 69 cents. Moreover, results compared favorably with the prior-year quarter earnings of 59 cents per share.
Results were aided by decline in expenses, partially offset by reduced revenues. Notably, the quarter recorded decline in assets under management (AUM) and recorded net outflows.
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T. Rowe Price's (TROW) Q3 Earnings Miss, Revenues Rise
T. Rowe Price Group, Inc. (TROW - Free Report) reported negative earnings surprise of 2.5% for third-quarter 2016. Adjusted earnings per share of $1.17 missed the Zacks Consensus Estimate of $1.20. However, the bottom line improved 10% from the year-ago earnings of $1.06.
Result excludes higher non-operating income associated with implementation of new accounting guidance in Jan 2016, related to the consolidation of certain sponsored investment portfolios.
Shares of T. Rowe Price declined more than 3% in the beginning of the trading session today, reflecting investors’ concern on higher expenses. However, the price reaction during full trading session will give a better idea.
Increase in net revenue and assets under management (AUM) were the positive factors, while elevated operating expense was the downside.
Net income came in at $299.9 million, up 8% from the prior-year quarter.
Revenue & Expenses Rise
Net revenue rose 4% to $1.09 from the year-ago quarter. The rise was primarily due to higher investment advisory fees that grew 5% year over year to $970.5 million. Net revenue also outpaced the Zacks Consensus Estimate of $1.07 billion.
Distribution and servicing fees declined 3.7% to $36.7 million. Additionally, administrative fees decreased 2.9% year over year to $85.7 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds, distributed in the U.S., were up 5% year over year to $703.5 million. Investment advisory revenues earned from other investment portfolios, managed by the company, increased 6% from the year-ago quarter to $267 million.
Total operating expenses rose 4% year over year to $617.2 million in the quarter. The rise was mainly driven by increase in all components, except distribution and servicing costs.
As of Sep 30, 2016, T. Rowe Price employed 6,239 associates, 4% higher than last year.
Strong Assets Position
As of Sep 30, 2016, total AUM increased 12% year over year to $812.9 billion. During the quarter, net market appreciation and income, came in at $36.5 billion, while net cash outflow was $0.2 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 as of Sep 30, 2016, which help the company to keep on investing.
Capital Deployment Activity
During the first nine months of 2016, T. Rowe Price repurchased 8 million shares of its common stock for $546.9 million and utilized the available cash balance by investing $112.5 million in capitalized technology and facilities.
For 2016, the company expects capital expenditures to be approximately $165 million, comprising two-third for technology development.
Our Viewpoint
With its financial stability T. Rowe Price has the potential to gain from growth opportunities in domestic and global AUM. The company’s debt-free position and higher return on earnings should strengthen its financials.
However, higher operating expenses and stringent regulatory norms remain primary concerns.
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 #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Performance of other investment managers
SEI Investments Co. (SEIC - Free Report) reported earnings per share of 53 cents that outpaced the Zacks Consensus Estimate by 4 cents. Moreover, the bottom line improved 13% from the prior-year quarter tally of 47 cents.
Higher revenues and income from operations, along with improvement in asset position, aided the better-than-expected results. On the down side, the quarter witnessed an increase in expenses.
Janus Capital Group, Inc.’s reported adjusted earnings per share of 24 cents, beating the Zacks Consensus Estimate by a penny. Moreover, the bottom line improved 9.1% from the prior-year quarter.
Though the company outperformed the Zacks Consensus Estimate for earnings, we remain apprehensive due to declining revenues. However, the decline in operating expenses is a consequence of prudent expense management. Moreover, increase in AUM was another positive.
Franklin Resources, Inc. (BEN - Free Report) reported earnings per share of 82 cents, handily beating the Zacks Consensus Estimate of 69 cents. Moreover, results compared favorably with the prior-year quarter earnings of 59 cents per share.
Results were aided by decline in expenses, partially offset by reduced revenues. Notably, the quarter recorded decline in assets under management (AUM) and recorded net outflows.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>