Earnings surge 24 percent at T. Rowe Price in fourth quarter
By NATALIE SHERMAN and The Baltimore Sun
Jan 28, 2014 | 7:39 PM
T. Rowe Price Group's stock soared Tuesday after the firm reported fourth-quarter earnings rose 24 percent compared with the year before, beating analyst expectations.
The Baltimore money manager posted a profit of $287.7 million and earnings per share of $1.06, three cents above analyst expectations, for the October-to-December period. A year earlier, it earned $232 million, or 88 cents a share.
Revenue rose to $929.8 million for the three months ended Dec. 31, up from $787.3 million the same period a year earlier.
T. Rowe Price also reported net inflows of $100 million in the fourth quarter, after two periods of outflows when clients appeared to be pulling their funds.
Wall Street welcomed the results as Price shares surged almost 5.5 percent, or $4.19 a share, to close Tuesday at $80.70 each on the New York Stock Exchange.
"It seems that they've turned the corner," said Macrae Sykes, a Gabelli & Co. analyst. "Last year they were somewhat challenged by the outflow story, so they underperformed peers, but we continue to be very positive on them long-term."
T. Rowe Price closed 2013 with net income of $1 billion for the year and a record $692.4 billion assets under management, $115.6 billion more than at the end of 2012. Profits rose 19 percent year-over-year, with earnings per share at $3.90, again three cents above analyst expectations.
The stock market's banner year contributed to the firm's success, with market appreciation and investment income driving the increase in assets under management. The company experienced its first year of net cash outflows — investors pulling money out of funds — since 2000.
CEO James A.C. Kennedy said the "uncharacteristic" net cash outflows of $12 billion in 2013 were caused by poor performance in one of the portfolios, which changed management, and decisions by primarily foreign clients to make less risky investments or invest in their home countries.
"We've done a great job for clients over time. We're not perfect. We don't do a great job in every time period and every portfolio … but the vast majority of our portfolios have outperformed over most time periods," he said.
Operating expenses rose about 10 percent, as the firm's employment grew, up 5.5 percent to 5,668 people over the course of 2013. The company also opened two new buildings on its Owings Mills campus and made investments in technology.
Kennedy said the firm has several hundred positions open and anticipates further expansion, with hiring in areas such as technology and global sales and distribution. He said some of those positions will be in Baltimore, where T. Rowe Price recommitted to its downtown headquarters, renewing a lease to remain in its Pratt Street tower through 2027.
The company, which saw unusual turnover in top positions in 2013, is focused on retaining its employees, he said.
"I'm always paranoid about turnover, I'm always paranoid about keeping our talent," he said. "We're always trying to tweak how we can recruit."
Gabelli's Sykes said he was not concerned by the firm's rising expenses.
"This is a firm that is extremely scrutinous of costs, very well-managed, and again has world class margins," he said. "I would expect that the investments they've made will bear fruit going forward."