Price's earnings down in quarter

Droopy stock market blamed for rare slide

yearly profit a record

January 25, 2001|By Meredith Cohn | Meredith Cohn,SUN STAFF

The stock market's dismal performance in the last months of 2000 took its toll on mutual fund giant T. Rowe Price Associates Inc., which yesterday reported its first quarterly drop in profit in nearly a decade.

Earnings in the fourth quarter, which ended Dec. 31, dropped 21 percent to $55.5 million, or 43 cents a diluted share, from $70.1 million, or 55 cents a share, in the fourth quarter a year earlier.

For the full year, however, the company posted record revenue and earnings.

The fourth-quarter decline was Price's first earnings decline since its first quarter of 1991.

The Baltimore-based company blamed the drop on the general market downturn - which resulted both in a decline in asset levels as stock prices fell and outflows from mutual funds as investors pulled out - as well as changes in two institutional clients.

One client switched to a retirement plan managed by a different company after a merger, and the other, a large state pension plan, scaled back assets.

There was also a significant increase in expenses, mostly the result of the acquisition of the remaining 50 percent interest in Rowe Price-Fleming International from its British partner Robert Fleming Holdings Ltd in August for $783 million.

Expenses rose 15 percent in the fourth quarter to $199 million, from $169 million in the fourth quarter of 1999.

"We had increased expenses, and we had the two institutional retirement account changes. Between that and the generally tough financial environment, particularly in tech, it was a disappointing quarter," said Steven E. Norwitz, a spokesman for T. Rowe Price Group.

"We're generally cautious about the first half of the year," Norwitz said. "We're starting out with lower assets under management and lower advisory fees."

The company's shares fell 6.3 percent to $40 yesterday.

Mark Constant, an analyst for Lehman Brothers, said the company remains strong and he's optimistic about its future growth.

Constant had expected per-share returns of 47 cents, which was less ambitious than the rest of Wall Street, where the consensus estimate was 50 cents a share. The company missed that estimate by 7 cents.

"It wasn't their best quarter, but I wouldn't read too much into one quarter," Constant said. "They were victimized by what happened in the market in general, and they had acquisition-related costs."

Such costs are expected to remain a factor for the company's earnings in the first half of the year, but Constant said he believes that the acquisition will pay off by boosting asset growth.

The market downtown contributed to the drop in total assets under management to $166.7 billion as of Dec. 31 from $179.6 billion at the end of September, the company reported.

Fund assets closed 2000 at $106.3 billion, down from $114.5 billion at the beginning of the year.

The mutual funds had net outflows of $1.5 billion in the fourth quarter.

Revenue rose 2 percent in the fourth quarter to $292 million from $285 million in the fourth quarter of 1999.

For the year, revenue rose 17 percent to a record $1.2 billion from $1 billion the year earlier. Net income rose 11 percent to a record $269 million, or $2.08 a diluted share, compared with net income of $239 million, or $1.85 a diluted share, in 1999.

Expenses for the year went up to $754 million from $622 million.

In 2000, net cash outflows were $2.2 billion, which included funds related to the Rowe Price-Fleming acquisition.

"T. Rowe Price achieved good results during a year in which the stock market experienced its worst decline in more than two decades. Every major index fell," George A. Roche, chairman and president of the company, said in a statement.

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