T. Rowe Price's profit up 2.7% in 4th quarter

37 cents a share tops estimates and year-earlier period

February 01, 2003|By William Patalon III | William Patalon III,SUN STAFF

T. Rowe Price Group Inc. said yesterday that fourth-quarter net income edged up 2.7 percent, exceeding analysts' estimates.

For the three months that ended Dec. 31, Baltimore-based Price reported net income of $46.2 million - up from the $45 million the mutual fund firm recorded in the corresponding period the year before. On a per-share basis, net income was 37 cents - 2 cents better than a year earlier, and 6 cents better than analysts' consensus estimate of 31 cents, according to Thomson First Call.

Price's shares jumped $1.43, or 5.65 percent, to close at $26.74 yesterday.

"We continue to work very hard - enhancing all the services we offer," said George A. Roche, Price's chairman and president.

"We're working hard to get even closer to our customers," he said, by developing new products and services to suit them.

Price, the nation's seventh-largest mutual fund company, saw its bottom line improve even though its fourth-quarter revenue declined 8.3 percent, to $219.6 million. That decline was due chiefly to a 10 percent year-over-year decline in the level of assets under management, which stood at $140.6 billion at the close of the year.

Mutual fund companies and other asset-management firms get most of their revenue from the fees they charge on the money they control for clients. When those asset levels decline, fee income plunges - with revenue and profits close behind.

After three straight losing years in the stock market, investment companies have seen their assets drop across-the-board.

In its fourth quarter, Price mitigated the damage in part by reducing its compensation and tax expenses. It also brought in new money from investors to partially offset the decline in existing assets caused by falling stock prices, Price and analysts both said.

"The company had good control over its expenses, and [benefited] from a lower [effective] tax rate," Roche said.

Bruce R. Brewington, an analyst and director with Putnam Lovell NBF Securities in San Francisco, said Price apportioned more compensation money to the first nine months of 2002 than it needed to. That enabled it to reduce its compensation costs for last year's final three months.

"It accrued too much [earlier] and that allowed it to play catch-up, and lower its compensation expenses" in the fourth quarter, said Brewington, who follows Price, Legg Mason Inc., and other asset-management firms.

Four-quarter compensation costs declined by $83.9 million, or 8.7 percent.

A bright spot for the quarter - and likely for Price's future - was that investors added $641 million more to company funds than they withdrew during the quarter.

For all of 2002, net cash inflows to T. Rowe Price mutual funds totaled $3.1 billion, up significantly from recent years and the highest total since 1998, the firm said.

Bloomberg News contributed to this article.

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