Profit at Baltimore-based T. Rowe Price Group Inc. rose 22 percent to $94 million during the first quarter compared with the corresponding period last year as more investors poured money into the company's mutual funds.
Revenue was $357 million between January and March, compared with $305.7 million during the first three months of 2004, a 17 percent increase.
The mutual fund manager's return of 69 cents per diluted share missed the 70-cent return predicted by Thomson Financial. Revenue of $362.8 million was expected. Shares declined 19 cents yesterday to $55.97.
"Our short-run success is tied to the markets," said George A. Roche, president of T. Rowe Price. "Our long-run success is tied to how we perform for clients."
Roche spoke to an audience of about 70 people at T. Rowe Price's annual meeting yesterday in Baltimore, where he said the company's performance was robust considering "the year so far has been lackluster at best for financial markets."
The company saw a surge in new capital after customers left other mutual fund companies beset by scandals, company officials and experts said. Customers invested $5.5 billion in the company's funds during the first quarter. Inflows increased to $12.7 billion last year, from $7.5 billion in 2003.
"The most important thing is that their investment performance has been good," said Robert Lee, an analyst who follows T. Rowe Price for Keefe Bruyette & Woods Inc. in Chicago and owns no stock in the company. "If their investment performance wasn't good, [the growth] would be irrelevant. It's like icing on the cake."
Total assets managed were $235.9 billion at the end of the past quarter, a 17 percent increase compared with $201 billion on March 31, 2004.
The bigger asset pool prompted T. Rowe Price to increase its staff by 10 percent to 4,185 people worldwide. The company employs more than 3,100 in the Baltimore area.
Lee, who gave T. Rowe Price a "market perform" or hold rating, said he expects the fund manager to gain more inflow, but that won't necessarily boost earnings.
"You need a good market environment to really drive earnings up - the markets aren't performing," he said. "In a good environment, you can accelerate growth."
Roche said he has a "modestly positive outlook" for the markets the rest of the year. He also said the company will submit a bid to continue managing Maryland's college-savings plan. The company won a five-year bid in 2001 to manage the state's 529 savings plan.
Long term, Roche expects T. Rowe Price to benefit from an improved bond market. He said more investors will be interested in bonds when the Federal Reserve stops raising interest rates.
The bond market, which has been declining for about two years, will probably not improve until late this year, said Andrew Clark, an analyst with Lipper, a mutual fund information source.
"We're in the fourth year of an expansion - most last between four and five years," Clark said. "The scales will tip sometime between November of 2005 and November of 2006."
That is, if the economy adheres to historical trends, Clark said. Until that happens, "the bond market is going to be a difficult place to make money."