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T. Rowe Price's (TROW) Q1 Earnings Lag, Revenues Up Y/Y

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T. Rowe Price Group, Inc. (TROW - Free Report) reported negative earnings surprise of 1.7% for first-quarter 2017. Adjusted earnings per share of $1.18 missed the Zacks Consensus Estimate of $1.20. However, the bottom line improved 16.8% from the year-ago figure of $1.01.

Lower-than-expected results highlighted elevated operating expenses. However, top-line growth and higher assets under management (AUM) remained positives.

Including certain non-recurring items, net income came in at $385.9 million or $1.54 per share compared with $304.1 million or $1.18 per share recorded in the prior-year quarter.

Revenue Growth Displayed, Expenses Flare Up

Net revenue rose 12% to $1.11 billion from the year-ago quarter. The rise was primarily stemmed by higher investment advisory fees that grew 13.8% year over year to $991.1 million. Moreover, net revenue surpassed the Zacks Consensus Estimate of $1.10 billion.

Distribution and servicing fees rose 3.8% to $35.2 million. However, administrative fees declined 2.3% to $87.3 million on a year-over-year basis.

Investment advisory revenues earned from the T. Rowe Price mutual funds, distributed in the U.S., were up 13.2% year over year to $715.8 million. Investment advisory revenues earned from other investment portfolios, managed by the company, rose 15.3% from the prior-year quarter to $275.3 million.

Total adjusted operating expenses were up 10.0% year over year to $640.1 million in the quarter. Including certain one-time items, net of insurance recovery, associated with the Dell appraisal rights matter, expenses were $591.9 million, up 1.5%.

As of Mar 31, 2017, T. Rowe Price employed 6,474 associates, 5.5% higher than last year.

Strong Assets Position

As of Mar 31, 2017, total AUM climbed 12.7% year over year to $861.6 billion. During the quarter, net market appreciation and income, came in at $50.1 billion, while net cash inflow was $0.7 billion after client transfers.

T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $2.2 billion as of Mar 31, 2017, which assist the company to keep on investing.

Capital Deployment Activity

During first-quarter 2017, T. Rowe Price repurchased 4.6 million shares of its common stock for $316.3 million, and invested $46.9 million in capitalized technology and facilities using available cash balances.

For 2017, 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 the 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, going ahead. Furthermore, a relatively better mutual fund performance is a positive.

However, higher operating expenses and stringent regulatory norms 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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other investment managers, Legg Mason, Inc. , Lazard Ltd. (LAZ - Free Report) and Franklin Resources, Inc. (BEN - Free Report) are scheduled to report March quarter-end results on Apr 26, Apr 27 and Apr 28, respectively.

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