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T. Rowe Price's (TROW) Q3 Earnings Beat, Revenues In Line

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T. Rowe Price Group, Inc. (TROW - Free Report) reported a positive earnings surprise of 0.7% for third-quarter 2017. Adjusted earnings per share of $1.45 outpaced the Zacks Consensus Estimate by a penny. Further, the bottom line improved 23.9% from the year-ago figure of $1.17.

Third-quarter results were driven by higher revenues and assets under management (AUM). However, escalating expenses posed a concern.

Including certain non-recurring items, net income came in at $390.9 million or $1.56 per share compared with $327.8 million or $1.28 per share recorded in the prior-year quarter.

Revenues Increase, Expenses Up

Net revenues of $1.22 billion came in line with the Zacks Consensus Estimate. Also, it rose 11.8% from the year-ago quarter. The rise primarily stemmed from higher investment advisory fees that increased 13% year over year to $1.10 billion.

Distribution and servicing fees rose 1.9% to $37.4 million. In addition, administrative fees improved 2.2% to $87.6 million on a year-over-year basis.

Investment advisory revenues generated from the T. Rowe Price mutual funds, distributed in the United States, were up 11.4% year over year to $783.9 million. Investment advisory revenues generated from other investment portfolios, managed by the company, rose 17.2% from the prior-year quarter to $312.8 million.

Total adjusted operating expenses were up 8.1% year over year to $665.7 million in the quarter. Including certain one-time items associated with the Dell appraisal rights matter, expenses were $673.2 million, up 9.1%.

As of Sep 30, 2017, T. Rowe Price employed 6,796 associates, 7% higher than last year.

Strong Assets Position

As of Sep 30, 2017, total AUM climbed 16.6% year over year to $947.9 billion. During the quarter, net market appreciation and income came in at $38.4 billion while net cash inflow was $5.9 billion after client transfers.

T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of about $4.1 billion as of Sep 30, 2017, which enable the company to keep on investing.

Capital Deployment Activity

During the third quarter, T. Rowe Price repurchased 0.1 million shares of its common stock for $9.7 million and invested $129.1 million during the first nine months 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.

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 and diverse business model make us confident of its robust fundamentals, moving ahead. Furthermore, strong investment performance is another positive. However, higher operating expenses keep us apprehensive.

T. Rowe Price Group, Inc. Price and EPS Surprise

Currently, T. Rowe Price sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Performance of Other Investment Managers

BlackRock BLK reported third-quarter 2017 adjusted earnings of $5.92 per share, which outpaced the Zacks Consensus Estimate of $5.59. Also, the bottom line came in 15% higher than the year-ago quarter.

The Blackstone Group L.P. BX reported third-quarter 2017 economic net income of 69 cents per share, which topped the Zacks Consensus Estimate of 57 cents. Also, the figure was 21% above the prior-year quarter level.

Reflecting top-line strength, The Goldman Sachs Group, Inc.’s GS third-quarter 2017 results recorded a positive earnings surprise of 16.5%. The company reported earnings per share of $5.02, comfortably beating the Zacks Consensus Estimate of $4.31. Further, the bottom line witnessed 3% year-over-year improvement.

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