T. Rowe Price Group, Inc.’s (TROW) fourth quarter 2009 earnings of 57 cents per share came in ahead of the Zacks Consensus Estimate of 55 cents due to higher-than-expected top-line growth and higher assets under management (AUM). Earnings per share were drastically up from 9 cents in the prior-year quarter. Net income applicable to common shareholders increased sevenfold to $152.5 million from $24.3 million in the fourth quarter of 2008.
Net revenue increased 30.5% to $542.6 million from $415.9 million in the year-ago period and 8.9% from $498.1 million in the sequential quarter. The leap was primarily due to an increase in investment advisory fees that soared 40.0% year-over-year to $461.7 million. However, administrative fees declined 6.3% year-over-year to $80.1 million.
Investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the U.S. increased 39.2% year-over-year to $318.4 million. Investment advisory revenues earned from other investment portfolios that the firm manages increased 41.7% from the fourth quarter of 2008 to $143.3 million.
Total operating expenses increased 6.1% year-over-year to $312.8 million. This increase was primarily attributable to high compensation and related costs (up 12.7% year-over-year) resulting from a higher fourth quarter accrual for the firm’s year-end compensation program, employee benefits costs and other employment expenses. At the end of the reported quarter, the firm employed 4,802 associates, down 10.8% from the end of 2008.
Total AUM increased to $391.3 billion at Dec 31, 2009, up 41.6% compared to $276.3 billion at Sep 30, 2009. Higher market valuations and income increased mutual fund AUM by $10.3 billion during the reported quarter.
For full year 2009, T. Rowe Price’s net income was $433.6 million, compared to $490.8 million in 2008. Earnings per common share for 2009 were $1.65 as compared to $1.81 in 2008. Net revenue decreased 11.8% year-over-year to $1.87 billion.
T. Rowe remains debt-free with substantial liquidity, including cash and mutual fund investment holdings of $1.421 billion that supports T. Rowe Price’s ability to continue investing for the future periods.
Guidance
The management of T. Rowe projects an increase in operating expenses for 2010, as its estimated advertising and promotion expenditures for 2010 could increase up to 30% from 2009 while this expense is expected to be about $26 million for first quarter 2010. Moreover, the effective tax rate is estimated at about 38.0% for 2010.
While the fourth quarter results reflect a rebound post the financial crisis, the growth is still lower than the historical levels of 2007 and 2008. Although continued staff reductions and declining top-line growth suggest less buoyancy in the near term, T. Rowe has no balance sheet risk or financial leverage issues.
In the long run, we believe that its strong track record in investment management and the changing demographics in the retirement market will continue to drive organic growth.
Read the full analyst report on “TROW”
Zacks Investment Research
