A month has gone by since the last earnings report for T. Rowe Price Group, Inc. (TROW - Free Report) . Shares have added about 1.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
T. Rowe Price's Q2 Earnings Beat, Costs Escalate
T. Rowe Price reported positive earnings surprise of 13.64% for second-quarter 2017. Including certain non-recurring items, net income came in at $373.9 million or $1.50 per share compared with $203.3 million or 79 cents per share recorded in the prior-year quarter. Results surpassed the Zacks Consensus Estimate of $1.32.
Adjusted earnings per share of $1.28 improved 15.3% from the year-ago figure of $1.11.
Better-than-expected results were driven by higher revenues and AUM. However, escalating expenses were a concern.
Revenue Growth Recorded, Expenses Flare Up
Net revenue rose 12.1% to $1.17 billion from the year-ago quarter. The rise was primarily stemmed by higher investment advisory fees that grew 13.4% year over year to $1.04 billion. Moreover, net revenue surpassed the Zacks Consensus Estimate of $1.16 billion.
Distribution and servicing fees rose 2.2% to $36.4 million. In addition, administrative fees improved 3.2% to $91.3 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 12.7% year over year to $754.3 million. Investment advisory revenues earned from other investment portfolios, managed by the company, rose 15.1% from the prior-year quarter to $289.6 million.
Total adjusted operating expenses were up 11.6% year over year to $662.3 million in the quarter. Including certain one-time items associated with the Dell appraisal rights matter, expenses were $664.0 million, down 12.8%.
The company expects advertising and promotion costs for 2017 to increase around 10% year over year based on execution of a number of strategic initiatives.
As of Jun 30, 2017, T. Rowe Price employed 6,651 associates, 6.8% higher than the last year.
Strong Assets Position
As of Jun 30, 2017, total AUM climbed 16.4% year over year to $903.6 billion. During the quarter, net market appreciation and income, came in at $38.3 billion, while net cash inflow was $3.7 billion after client transfers.
T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $3.6 billion as of Jun 30, 2017, which enable the company to keep on investing.
Capital Deployment Activity
During second-quarter 2017, T. Rowe Price repurchased 1.9 million shares of its common stock for $130.7 million, and invested $82.6 million during the first half of 2017 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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.
At this time, T. Rowe Price's stock has a poor Growth Score of F, however its Momentum is doing a bit better with a D. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.