T. Rowe Price Group, Inc.’s (TROW) first quarter 2010 earnings of 57 cents per share came in a penny behind the Zacks Consensus Estimate of 58 cents. However, earnings per share was significantly up from 19 cents reported in the prior-year quarter due to higher-than-expected top-line growth and higher assets under management (AUM), partially offset by marginally higher operating expenses. Net income increased threefold to $153.0 million from $48.2 million in the first quarter of 2009.
Net revenue increased 44.7% to $556.2 million from $384.5 million in the year-ago period and 2.5% from $542.6 million in the prior quarter. The leap was primarily due to an increase in investment advisory fees that soared 53.8% year-over-year to $471.8 million. Administrative fees also increased by 8.0% year-over-year to $77.4 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the U.S. increased 53.7% year-over-year to $325.4 million. Investment advisory revenues earned from the other investment portfolios that the firm manages increased 53.6% from the year-ago quarter to $146.4 million.
Total operating expenses increased 6.1% year-over-year to $312.8 million. The increase was primarily attributable to high compensation and related costs (up 118.4% year-over-year) resulting from a higher interim accrual for 2010’s annual variable compensation program, employee benefits costs and other employment expenses. At the end of the reported quarter, the firm employed 4,779 associates, down 8.6% from the end of first quarter of 2009.
Total AUM increased to $419.0 billion at Mar 31, 2010, up 7.1% compared with $391.3 billion at Dec 31, 2009. Higher market valuations and income increased mutual fund AUM by $17.4 billion during the reported quarter, while net cash inflows came in at $10.3 billion, at the end of the reported quarter.
T. Rowe remains debt-free with substantial liquidity, including cash and mutual fund investment holdings of about $1.5 billion that supports T. Rowe Price’s ability to continue investing for the future periods. The company ended the reported quarter with $256.7 million in operating cash flows, compared to $139.4 million in the year-ago quarter.
Guidance
The management of T. Rowe reiterated its projection of an increase in operating expenses for 2010 as its estimated advertising and promotion expenditures could increase up to 30% from 2009 levels while, on a year-over-year comparison, this expense is expected to increase by $10 million for second quarter 2010. Moreover, the effective tax rate is estimated at about 37.8% for 2010.
Dividend Update
On Feb 18, 2010, the board of T. Rowe declared a quarterly dividend of 27 cents per share that was paid on Mar 29, 2010 to stockholders of record as on Mar 16, 2010. The quarterly dividend rate represents an 8% increase over the previous quarterly dividend rate of 25 cents per share.
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