T. Rowe Price posts 36% rise in profit

Money manager skirts effects of market slide

October 24, 2007|By Allison Connolly | Allison Connolly,SUN REPORTER

When the stock market headed south in August, T. Rowe Price Group Inc. wasn't sweating it out.

James A.C. Kennedy, Price's chief executive and president, credited a warning from his analysts nearly a year ago that the Baltimore money manager should cut back on risk. As a result, the firm managed to navigate the subprime crisis and weak housing market that caused U.S. stock indexes to fall in mid-August.

Price reported yesterday a 36 percent increase in profit for the third quarter and record assets of $396.8 billion.

Kennedy said he was most proud of the fact that 81 percent of the T. Rowe Price funds surpassed their comparable Lipper averages on a total return basis for the 10-year period ending Sept. 30.

"In my mind, that's pretty dramatic," Kennedy said yesterday in a phone call from London.

The firm's consistent performance has fueled its growth in Maryland and beyond. The firm announced plans last week for a major expansion of its Owings Mills campus, where it will add a pair of five-story office buildings and two parking garages with 1,300 spaces.

Price expects the expansion will create 1,400 jobs at the campus, which currently employs 2,600, nearly half of the company's work force.

The company also is building a new customer-service call center in Colorado.

Kennedy is optimistic about the company's future, despite concerns that market volatility will persist and baby boomers will soon start drawing from their retirement funds, a key segment for Price.

Whether it takes months or years to fill the new buildings, he said the company couldn't wait until the last minute to build them.

"You have to spend in advance on infrastructure to be prepared for your clients," he said.

For the three-month period ending Sept. 30, Price's net income climbed to $174.8 million, or 63 cents per diluted share, compared with $128.3 million, or 46 cents per share, for the third quarter of 2006. Revenue climbed 27 percent to $571 million, compared with $450.6 million for the quarter last year.

Earnings met the forecast of analysts polled by Thomson Financial.

Andrew Richards, an equity analyst for Morningstar Inc., said it appeared to be another solid quarter for Price, with growth in all segments. However, he said the company's stock is overvalued and a bear market would certainly have an impact on future performance. Price stock closed up $4.04 yesterday, or 7.3 percent, at $58.73 per share.

"They're really hitting on all cylinders, but that was expected," he said.

Michael Hecht, a Banc of America Securities analyst, wrote in his report that expenses were a bit higher than he expected - up $57 million over 2006 to $307 million - but he attributed it to spending on future growth.

The biggest expense was compensation, which increased by $40 million over the third quarter of last year. The company's work force has grown 20 percent in three years and 8 percent since January for a total of 4,984.

Hecht, who has a "neutral" rating on Price stock, also noted that the company ended the quarter debt-free and with $1.7 billion in cash and investments. He raised his 12-month target price from $51 to $53.

allison.connolly@baltsun.com

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