T. Rowe Price Group Inc. posted its 10th consecutive increase in quarterly profits, which rose 41 percent in the third quarter as the Baltimore investment firm benefited from a rosy period in the stock market.
The firm, which has built a reputation on its stock-picking prowess, saw its mutual funds appreciate $7.3 billion in the third quarter. Other portfolios managed for clients such as wealthy individuals and organizations appreciated $3.3 billion.
Investments were lifted by a third quarter that saw the S&P 500 index rise 3.1 percent, its best quarter this year.
Those gains helped push the firm's net income to $116 million, or 85 cents a share, compared with $82.5 million, or 62 cents a share, in the third quarter of 2004. The firm beat earnings forecasts by 3 cents a share, according to analysts polled by Thomson Financial.
"The market was their tail wind," said Rachel Barnard, an analyst at Morningstar Inc., which tracks mutual funds. "If you look at the fourth quarter, though, the market has been down. In fact, we saw a pretty big drop. If we don't have a rally, they're not going to have that same tail wind."
The S&P 500 declined 3 percent over the first four days of the fourth quarter, erasing all of the progress made in the entire third quarter, although the index has recovered slightly since then.
About three-fourths of the money that T. Rowe Price manages is in stocks, a higher rate than at many competitors. Legg Mason Inc., another Baltimore investment firm, has about one-third of the assets it manages in stocks.
Price Chairman George A. Roche had an upbeat outlook, noting that companies are "generally in good financial shape" and that "profitability is robust." Longer-term prospects are favorable for the stock market - and for investors, he said.
Still, institutional clients and others in managed portfolios withdrew a net $1.3 billion during the quarter that ended Sept. 30.
Roche said the firm had "weak" returns in some international investments, which prompted clients to look elsewhere. He said the firm has responded by beefing up its analyst force in the overseas arena.
Investors continued to flock to the company's mutual funds in the third quarter, depositing $3.5 billion, including $1.1 billion in two flagship stock funds and $800 million in "target-date" retirement funds. Another $400 million was added to T. Rowe Price index funds through the acquisition of TD Waterhouse funds.
Roche said the firm would consider making acquisitions similar to TD Waterhouse as long as the price is right. He also said he wouldn't do a "monster" transaction like the $3.7 billion deal undertaken by Legg Mason to swap its brokerage business for more than $400 billion in assets that Citigroup Inc. manages for clients, including mutual funds.
"That's not our modus operandi," he said. "We wouldn't want to run a whole separate organization with a different culture."
Much of T. Rowe Price's growth comes from the retirement market. Target-date funds, which provide a single vehicle that shifts to a less-risky investment style over time, have been one of the firm's fastest expanding segments.
T. Rowe Price distinguishes itself by taking a more aggressive approach with the target-date funds by putting a greater emphasis on stocks. The company ran Monte Carlo models - complicated computer experiments that project hundreds of thousands of scenarios - and found that, as life expectancies lengthen, people will have a greater chance of not running out of money if they invest in more stocks.
T. Rowe Price's stock edged up 9 cents, or less than 1 percent, to close at $64.83 yesterday.