T. Rowe Price's earnings up 53% in third quarter

51 cents a share reported as market rally swells firm's revenue by 16%

October 25, 2003|By William Patalon III | William Patalon III,SUN STAFF

T. Rowe Price Group Inc. reported yesterday that its third-quarter profits soared more than 50 percent, due in large part to continued stock market strength that attracted more money from investors while boosting the value of the assets it already managed.

Baltimore-based Price said net income in the quarter that ended Sept. 30 rose to $66.3 million, up 53.5 percent from the $43.2 million it earned during last year's third quarter.

Per-share earnings were 51 cents, a 50 percent jump from the 34 cents recorded during last year's third quarter. The results exceeded the 47 cent consensus estimate of 13 analysts surveyed by Zacks Investment Research.

"We were pleased about the earnings this quarter," said George A. Roche, the company's chairman and president.

Revenue advanced 16.6 percent to $258.3 million this year from $221.6 million in the third quarter of 2002, the company said.

For mutual fund companies such as Price, asset levels and net investment inflows are usually keys to performance because they boost management fees that generate revenue.

Assets under management rose by about $7.8 billion during the third quarter for the company. About $5.1 billion of that resulted from increases in stock or bond prices, while net-cash inflows of more than $2.6 billion accounted for much of the rest, the company said. Of the $2.6 billion, $1.8 billion was invested in T. Rowe Price stock funds, the company said.

"We are encouraged by signs that individual investors continue to commit substantial assets to the equity markets," Roche said.

Average mutual fund assets under management were $103.4 billion during this year's third quarter, up from $86.6 billion during the same quarter in 2002.

Price said it will significantly increase spending on advertising and promotion during the fourth quarter - as much as doubling the roughly $10 million the firm spent during the third quarter. Mutual-fund companies typically spend the heaviest on marketing during the first and fourth quarters of any year, when many investors make investment plans, Roche said.

In an interview yesterday, Roche confirmed that Price has been in contact with the U.S. Securities and Exchange Commission regarding an industrywide investigation of improper and illegal trading in mutual fund shares. Roche declined to discuss specifics, stating that Price has a corporate policy of not commenting on potential legal issues. Price has historically made public disclosures of any serious matters involving the company.

The two activities under investigation industrywide are "after-hours trading" and so-called "market-timing." After-hours trading is illegal and involves same-day processing of mutual-fund transaction orders placed after 4 p.m. New York time. Those orders are supposed to receive the following day's closing price, a process designed to keep investors from profiting from late-breaking news.

Mutual fund market-timers attempt to profit through the frenetic buying and selling of fund shares, with a holding period that can be as short as a day or two. Some fund companies attempt to discourage this practice through sales commissions known as "loads" and by charging redemption fees. Market-timing can boost a fund's transaction expenses, or dilute the profits of investors who had held that same fund's shares for a long period.

Last month, New York Attorney General Eliot Spitzer announced that his office would investigate these two practices. Yesterday, Roche said the local mutual fund company continued to "condemn the actions described by the New York attorney general." Price said it is reviewing its own activities.

Price shares closed yesterday on the Nasdaq stock market at $39.50, down $1.05, or 2.6 percent.

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