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T. Rowe Price's (TROW) Q1 Earnings Miss, Revenues Increase

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T. Rowe Price Group (TROW - Free Report) reported earnings per share of $1.77 for first-quarter 2018, which lagged the Zacks Consensus Estimate of $1.78. Further, the bottom line improved 14.9% from the year-ago figure of $1.54.

First-quarter results reflect escalating expenses. However. higher revenues and assets under management (AUM) were the positive factors. Also, the company’s strong balance sheet position along with ample liquidity were the other tailwinds.

Net income for the quarter came in at $453.7 million compared with $385.9 million recorded in the prior-year quarter.

Revenues Increase, Expenses Up

Net revenues of $1.33 billion topped the Zacks Consensus Estimate of $1.30 billion. Also, it rose 17.3% from the year-ago quarter. The rise primarily stemmed from higher investment advisory fees that increased 19.8% year over year to $1.19 billion.

Distribution and servicing fees declined nearly 1% to $138.8 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 16.1% year over year to $832.9 million. Investment advisory revenues generated from other investment portfolios, managed by the company, rose 29.4% from the prior-year quarter to $356.3 million.

Total operating expenses were up 21.8% year over year to $744.2 million in the quarter. The rise was mainly due to higher administrative, distributing and compensation expenses.

As of Mar 31, 2018, T. Rowe Price employed 6,878 associates, 8.2% higher than the prior year.

Strong Assets Position

As of Mar 31, 2018, total AUM climbed 22.2% year over year to $1.01 billion. During the quarter, net market appreciation and income came in at $11.8 billion while net cash inflow was $11.3 billion after client transfers.

T. Rowe Price remains debt free with substantial liquidity, including cash and investment in its products of about $4.4 billion as of Mar 31, 2018, which enables it to keep on investing.

Capital Deployment Activity

During the first quarter, T. Rowe Price repurchased 2.9 million shares of its common stock for $313.5 million.

The firm invested $36.7 million during the quarter in capitalized technology and facilities using available cash balances. It projects capital expenditures to be approximately $180 million in 2018, comprising two-thirds 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, Consensus and EPS Surprise

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Investment Managers

TD Ameritrade Holding Corporation (AMTD - Free Report) reported earnings per share of 73 cents in second-quarter fiscal 2018 (ending Mar 31), beating the Zacks Consensus Estimate by a penny. Moreover, the bottom line increased 66% from the prior-year quarter.

E*TRADE Financial (ETFC - Free Report) pulled off a positive earnings surprise of 11.4% in first-quarter 2018. Earnings of 80 cents per share surpassed the Zacks Consensus Estimate of 79 cents. Moreover, results compared favorably with 48 cents recorded in the prior-year quarter.

Riding on strong fixed income trading revenues, Goldman Sachs (GS - Free Report) delivered a positive earnings surprise of 22.6% in first-quarter 2018. The company reported earnings per share of $6.95, comfortably beating the Zacks Consensus Estimate of $5.67. Further, the bottom line witnessed 35% year-over-year improvement.

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