Bloomberg News

T. Rowe Price Falls Most Since 2009 on Missed Estimates

October 25, 2011

(Adds closing share price in second paragraph.)

Oct. 25 (Bloomberg) -- T. Rowe Price Group Inc., the asset manager that has posted a profit every quarter since going public in 1986, fell the most in more than two-and-a-half years after investors withdrew money and third-quarter earnings missed analysts’ estimates.

T. Rowe Price fell 8.8 percent to close at $51.08 in New York trading, the biggest drop since March 24, 2009. The company has declined 21 percent this year, compared with the 24 percent drop for the Standard & Poor’s 19-member index of asset managers and custody banks.

“T. Rowe is not immune to the challenging macro environment, even after clearly demonstrating a consistency of flows and asset growth in the past,” Michael Kim, an analyst with Sandler O’Neill & Partners LP in New York, said in a telephone interview.

Investors pulled $2.6 billion, the first client withdrawals since the fourth quarter of 2008, and market losses reduced assets by another $64.8 billion to $454 billion, the Baltimore- based company said today in a statement. Continued deposits to retirement-oriented products, which Chief Executive Officer James Kennedy has steadily built, failed to offset redemptions by institutional clients.

Net income climbed 9.6 percent to $184.6 million, or 71 cents a share, from $168.4 million, or 64 cents, a year earlier, according to the statement. The average estimate of 18 analysts surveyed by Bloomberg was for profit of 74 cents a share.

Revenue Increases

“When equity markets are getting hit, we will get hit more because we are more heavily equity weighted,” Kennedy said today in an interview.

T. Rowe Price has about 79 percent of assets invested in equities. Global stocks, as measured by the the MSCI AC World Index, fell 8 percent in the year ended Sept. 30 and have declined a similar amount this year.

Compared with a year earlier, assets rose 3.1 percent to $454 billion after rising to a record $521 billion at the end of the second quarter. That helped revenue increase 16 percent to $679 million. Expenses climbed 19 percent to $384 million, driven by a 17 percent rise in compensation costs.

Institutional investors withdrew $2.4 billion, including a single client that pulled about $1.3 billion from an equity investment, Kennedy said. Mutual funds lost $200 million in redemptions. Target-date retirement funds, which automatically shift to more conservative investments as a client ages, attracted $1.4 billion.

Money-Fund Fees

T. Rowe is the third-largest U.S. manager of target-date retirement funds. Vanguard Group Inc. of Valley Forge, Pennsylvania, and Boston’s Fidelity Investments are the largest U.S. providers.

The company waived $10.7 million in money-market mutual fund fees in the quarter and $26 million this year. Low yields on eligible securities have led most money-market fund managers to waive some fees this year to keep shareholder returns above zero.

Mutual fund performance declined. Over the past year, 53 percent of funds beat their peers, as measured by Denver-based research firm Lipper, down from 71 percent year earlier. Over three and five years, outperforming funds declined to 80 percent and 84 percent, respectively, from 86 percent and 89 percent.

Shares Buyback

The company spent about $229 million to repurchase 4.5 million shares of its common stock in the quarter, raising its buybacks this year to 8.5 million shares.

BlackRock Inc., the world’s biggest money manager, said Oct. 19 that third-quarter profit climbed 8 percent to $595 million even as investors withdrew $10.2 billion from the New York-based company. Janus Capital Group Inc., based in Denver, said Oct. 20 that net income fell 16 percent to $27.4 million while recording its ninth straight quarter of redemptions as investors withdrew $2.3 billion.

--Editors: Steven Crabill, Christian Baumgaertel

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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