Profits Fall, Assets Rise At Price

July 25, 2009|By Hanah Cho | Hanah Cho,

Baltimore money manager T. Rowe Price Group said Friday that its second-quarter profits fell 38 percent from the same period a year ago, but the company beat Wall Street expectations and clients poured $3.5 billion into its mutual funds and other investments.

Net income for the three months ending June 30 declined to $100 million, or 38 cents per share, compared with $162.2 million, or 59 cents per share, a year ago. Price's earnings exceeded Wall Street expectations of 34 cents per share.

Price shares lost 81 cents, or 1.75 percent, to close at $45.45.

The firm's assets under management totaled $315.6 billion, up from $268.8 billion in the first quarter, buoyed by the market rally and new client investments in its equity, bond and money market funds. Some asset managers such as Legg Mason have seen investors withdraw money from their funds.

A source of strength has been Price's retirement funds. They grew by $1.8 billion to reach $33.1 billion, accounting for 10 percent of the company's assets under management.

"It was a good quarter - a nice comeback from where we have been - because the markets have come back," Price Chief Executive and President James A.C. Kennedy said in an interview. "We had very good relative performance of our managers, and the vast majority of our funds are outperforming their peers over the one-, three- and five-year performance. ... When you're performing like that for clients, more money is coming in. The cash inflows have been strong."

Net revenue declined to $442.2 million in the three months ending June 30, down from $586.5 million for the same period last year, as the company saw lower investment advisory fees.

Operating costs fell 12 percent, to $288.3 million, including compensation expenses.

Price began curbing expenses late in 2007 as the economy began to sour. In April, the company cut 288 people, two-thirds of them in its Baltimore and Owings Mills locations, mostly in back-office functions. Price employed 4,875 people at the end of June, down 9.5 percent from the end of 2008.

Jim Shanahan, a senior analyst at Wells Fargo Securities, called Price's earnings "solid," noting its strong revenue and assets in a research report. Shanahan said the company's "cost-control efforts continue to produce solid results."

Kennedy said the global financial crisis since last year hurt Price's advisory revenue and lowered its assets under management.

With signs of a market recovery in the spring, Kennedy said he was cautiously optimistic about the second half of the year.

"We're behind the panic state that we saw in the January-February time period," he said. "We're in the healing mode at this point, and the healing will help the economy flatten out and start to recover."

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