Bloomberg News

T. Rowe Price’s Profit Falls 1.7% After Stock Markets Drop

January 29, 2012

(Updates share price in sixth paragraph.)

Jan. 27 (Bloomberg) -- T. Rowe Price Group Inc., the asset manager that has posted a profit every quarter since going public in 1986, said quarterly earnings fell for the first time in more than two years after stock markets declined.

Net income decreased 1.7 percent to $188.4 million, or 73 cents a share, from $191.6 million, or 72 cents, a year earlier, the Baltimore-based company said today in a statement. Earnings per share increased as the number of outstanding shares fell 2.7 percent. The average estimate of 12 analysts surveyed by Bloomberg was for profit of 69 cents a share.

“They are still seeing a lot of growth from retirement accounts, but they are not immune to the broader derisking trend,” Michael Kim, an analyst with Sandler O’Neill & Partners LP in New York, said in a telephone interview before results were announced.

T. Rowe Price, under Chief Executive Officer James Kennedy, had reported eight straight quarters of year-over-year profit growth driven in part by the popularity of its retirement- oriented products. Equity markets declined in 2011, curbing asset growth at the company. T. Rowe Price has about three- fourths of assets invested in equities.

Global stocks, as measured by the MSCI AC World Index, fell 9.4 percent in 2011 and the Standard & Poor’s 500 Index of U.S. stocks was almost unchanged.

Increased Assets

T. Rowe Price dropped 2 percent to close at $59.82 in New York trading. The shares have fallen 12 percent in the past year, compared with the 19 percent decline of Standard & Poor’s 20-company index of asset managers and custody banks.

The amount of money T. Rowe Price invests for clients rose 1.6 percent to $490 billion as of Dec. 31, boosted by $1.1 billion in deposits in the fourth quarter and $14.1 billion in 2011, including $8 billion to target-date retirement funds. Market depreciation reduced assets by $6.6 billion from a year earlier.

“Performance continues to be good,” Kennedy said in a telephone interview. “The market had a negative impact, but because of the performance clients trusted us with another $14 billion.”

The higher assets helped increase revenue 3.7 percent to $672 million, outpacing the growth of expenses, which climbed 3.6 percent to $378 million. Compensation, the largest expense item, rose 1.4 percent.

‘Very Cautious’

Kennedy said the company was “very cautious” with expenses in 2011 and took advantage of the firm’s falling stock price in much of 2011 by spending $480 million to repurchase 8.7 million shares.

T. Rowe Price’s mutual funds attracted $2.2 billion in the quarter, including $1.9 billion into bond funds. Institutional clients withdrew $1.1 billion as their redemptions from stock and balanced investments surpassed deposits to fixed-income products.

A higher tax rate also eroded net income compared to a year earlier, as the company’s provision for income taxes rose to 39 percent of pretax income from 36 percent.

T. Rowe Price’s net income last declined in the third quarter of 2009, a year after the collapse of Lehman Brothers Holdings Inc. helped trigger a six-month plunge in stocks.

BlackRock Inc., the world’s largest money manager, said Jan. 19 that fourth-quarter net income fell 16 percent to $555 million, and the firm cut 3.4 percent of its workforce. Denver- based Janus Capital Group Inc. yesterday said fourth-quarter net income declined 46 percent.

--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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