Price's earnings surge 47.5% Plans announced to open 2 new index funds

Mutual fund industry

January 28, 1998|By William Patalon III | William Patalon III,SUN STAFF Bloomberg News contributed to this article.

T. Rowe Price Associates Inc. yesterday reported net income of $40.7 million, or 63 cents a share, for its 1997 fourth quarter, capping a year in which the mutual fund company recorded record revenue and earnings.

The company also disclosed yesterday that it will open two new "index" funds to investors next week.

The fourth-quarter profit represented a 47.5 percent jump from the $27.6 million reported for the corresponding period a year ago. Per-share earnings rose 43.2 percent. The fourth-quarter profit was in line with expectations, according to a survey of eight analysts by Zacks Investment Research.

Revenue for the three months ended Dec. 31 totaled $207 million, up 29.38 percent from the $160 million recorded for fourth-quarter 1996.

George A. Roche, the company chairman and president, said a strong stock market buttressed by strong money flows into the firm's mutual funds contributed to record revenue of $755 million for all of 1997.

For the year, net income rose 47 percent to a new high of $144.4 million. Diluted earnings per share of $2.25 per the year represented a 42 percent increase from 1996. Assets under management at year-end were $81.1 billion, compared with $64.4 billion a year earlier. Net cash inflows to the funds for 1997 were $8.5 billion, with the rest of the increase coming from the rising markets.

"Our expectations were exceeded in 1997," Roche said in a statement.

Analyst Bruce R. Brew-ington, who follows the company for Putnam, Lovell & Thornton Inc. in San Francisco, said the results were a bit better than he expected and he continues to rate T. Rowe Price shares as a "buy."

"We like T. Rowe Price a lot," Brewington said. "If you want to get into the growth in the asset-management industry, it's a good time to get in through T. Rowe."

Brewington's 12-month target price has been $75. The shares closed yesterday at $54.875, up 62.5 cents. The stock topped out at $73.75 in late October.

T. Rowe Price said its two new funds that track specific market indexes -- hence, the term "index" funds -- will become available to investors next week. The mutual fund company had said earlier this month that it was seeking Securities and Exchange Commission approval for the two funds. The first is the Extended Equity Market Index Fund, which will track the Wilshire 4500 index. The second is the Total Equity Market Index Fund, which will mimic the Wilshire 5000 index.

T. Rowe Price's Standard & Poor's 500 index fund, operated since March 1990, will be renamed the Equity Index 500 Fund.

"T. Rowe Price is waking up to the fact that indexing is the wave of the future," said Sheldon Jacobs, who tracks the $4.4 trillion fund industry as editor of the No-Load Fund Investor.

Index funds have been growing in popularity. Investors have warmed to such funds during the bull market of the past few years because index funds guarantee a return in line with a broader market index -- unlike many actively managed funds the past four years -- and at a lower cost.

However, they do not guarantee a positive return; if the broad market does poorly, the funds will, too. It remains to be seen if index funds will retain their popularity if the broader stock market falls a significant amount or for an extended period.

Pub Date: 1/28/98

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