BALTIMORE, Oct. 23, 2014
/PRNewswire/ -- T. Rowe Price Group, Inc. (NASDAQ-GS: TROW)
today reported its third quarter of 2014 results, including net
revenues of $1.0 billion, net income
of $303.6 million, and diluted
earnings per common share of $1.12.
On a comparable basis, net revenues were $884.4 million, net income was $270.3 million, and diluted earnings per common
share was $1.00 in the third quarter
of 2013.
Investment advisory revenues for the third quarter of 2014 were
up $122.4 million to $890.7 million
from the comparable 2013 period, as average assets under management
increased $103.2 billion, or 16%.
Assets under management were $731.2
billion at September 30, 2014, down $7.2 billion from the end of June 2014 as market depreciation, net of income,
of $7.4 billion was offset in part by
net cash inflows of $.2 billion. The
firm's assets under management at September 30, 2014, include
about $188 billion of asset
allocation portfolios, of which $122.5
billion are in target-date retirement funds and $19.9 billion are in target-date retirement
trusts. These target-date retirement portfolios were the source of
$3.7 billion of the firm's net cash
flows in the third quarter of 2014, including $3.4 billion that originated in its target-date
retirement funds.
Results for the first nine months of 2014 include net revenues
of $3.0 billion, net income of
$913.7 million, and diluted earnings
per share of $3.37, an increase of
19% from the $2.83 per share earned
in the first nine months of 2013. Assets under management have
increased $38.8 billion from the end
of 2013, including $30.0 billion
added from market appreciation and income and $8.8 billion from net cash inflows.
From an investment performance standpoint, 74% of the T. Rowe
Price mutual funds across their share classes outperformed their
comparable Lipper averages on a total return basis for the
three-year period ended September 30, 2014, 79% outperformed
for the five-year period, 89% outperformed for the 10-year period,
and 80% outperformed for the one-year period. In addition, T. Rowe
Price stock, bond, and blended asset funds that ended the quarter
with an overall rating of four or five stars from Morningstar
account for nearly 81% of the firm's rated funds' assets under
management. The performance of the firm's institutional strategies
against their benchmarks was substantially similar. The firm's
target-date retirement funds continue to deliver very attractive
long-term performance, with 100% of these funds outperforming their
comparable Lipper averages on a total return basis for the three-
and five-year periods ended September 30, 2014.
Financial Highlights
Investment advisory revenues earned in the third quarter of 2014
from the T. Rowe Price mutual funds distributed in the United States were $641.6 million, an increase of 19% from the
comparable 2013 quarter. Average mutual fund assets under
management in the third quarter of 2014 were $471.7 billion, an increase of 19% from the
average in the third quarter of 2013.
Mutual fund assets at September 30, 2014 were $466.4 billion, down $4.5
billion from the end of June
2014. Net cash inflows into the mutual funds were
$1.1 billion during the third quarter
of 2014, as net inflows into the bond funds of $1.9 billion were offset in part by net outflows
of $.7 billion from the stock and
blended asset funds and $.1 billion
from the money market funds. Decreases in market valuations, net of
income, lowered mutual fund assets under management by $5.6 billion during the third quarter of
2014.
Investment advisory revenues earned in the third quarter of 2014
from the other investment portfolios were $249.1 million, an increase of $22.1 million from the comparable 2013 quarter.
Average assets under management in the third quarter of 2014 were
$267.8 billion, an increase of
$27.7 billion, or 12%, from the
average in the third quarter of 2013. Assets under management in
these portfolios at September 30, 2014 were $264.8 billion, down $2.7
billion from the end of June
2014, as market depreciation, net of income, of $1.8 billion and net cash outflows of
$.9 billion reduced assets under
management during the 2014 quarter. These net cash outflows were
primarily concentrated among a small number of institutional
investors who redeemed from both equity and fixed income mandates.
Investors domiciled outside the United
States accounted for 6.1% of the firm's assets under
management at September 30, 2014.
Money market advisory fees and other fund expenses voluntarily
waived by the firm to maintain positive yields for investors in the
third quarter of 2014 were $14.6
million, an increase of $.7
million from the comparable 2013 quarter. For the first nine
months of 2014, the firm has waived $43.9
million in such fees compared with $36.8 million in the 2013 period. The firm
expects it will continue to voluntarily waive such fees for the
remainder of the year and into 2015.
Administrative fee revenues increased $7.3 million to $92.7
million in the third quarter of 2014. The increase is
primarily attributable to increased costs incurred to provide
transfer agent servicing activities to the mutual funds and their
investors. The change in administrative fee revenues are generally
offset by similar changes in operating expenses.
Operating expenses were $532.1
million in the third quarter of 2014, up $73.6 million from the comparable 2013 quarter.
Compensation and related costs have increased $55.1 million from the third quarter of 2013, due
primarily to higher salaries, benefits and related employee costs
from base salary increases and added headcount, and increases in
temporary personnel, stock-based compensation, and the interim
accrual for year-end bonus compensation. The firm has increased its
average staff size by 4.9% from the third quarter of 2013. At
September 30, 2014, the firm employed 5,824 associates.
Advertising and promotion costs were $12.7 million in the third quarter of 2014, a
decrease of $2.0 million from the
comparable 2013 period. The decrease in cost is primarily a result
of the firm repurposing this spending to other distribution
activities. As such, the firm expects total advertising and
promotion costs for 2014 to be about 10% lower than such costs in
2013.
Occupancy and facility costs, together with depreciation and
amortization expense, were $64.2
million in the third quarter of 2014, up $9.2 million compared to the third quarter of
2013. About a third of the increase is attributable to the opening
of two new buildings at the firm's Owings
Mills, Maryland campus in the fourth quarter of 2013. The
increase also includes the added costs to renovate certain existing
facilities, as well as update and enhance technology capabilities,
including related maintenance programs.
Other operating expenses in the third quarter of 2014 were up
$4.4 million from the comparable 2013
quarter, as increased business demands and the firm's continued
investment in its operating capabilities have increased costs.
These higher costs in the third quarter of 2014 include those
related to the firm's defined contribution recordkeeping business
and travel costs.
Net non-operating investment income in the third quarter of 2014
decreased $6.4 million from the 2013
quarter to $5.2 million. The decrease
is primarily due to lower market valuations which resulted in net
investment losses to be recognized on certain of the firm's other
investments in the third quarter of 2014 compared with net
investment gains in the 2013 quarter.
The firm's effective tax rate for the third quarter of 2014 is
38.5%, and the firm currently estimates that its effective rate for
the full-year 2014 will be about 38.4%.
T. Rowe Price remains debt-free with ample liquidity, including
cash and sponsored portfolio investment holdings of nearly
$3.6 billion. During the first nine
months of 2014, the firm has expended $307.3
million to repurchase 3.9 million shares of its common
stock, including 3.2 million shares in the third quarter of 2014.
The firm also invested about $83
million year-to-date in capitalized technology and
facilities from existing cash balances, and currently expects total
capital expenditures for property and equipment for 2014 to be
approximately $130 million, which
will be funded from operating resources.
Management Commentary
James A. C. Kennedy, the
company's chief executive officer and president, commented: "In
general, markets have appeared to be fairly to fully-priced, even
as some markets reflect greater uncertainty about the economic
environment and increased geopolitical tensions.
"In the U.S., the economic recovery has now begun its sixth
year. This expansion is long by historical standards, albeit at a
lower than normal growth rate. In the third quarter, equity
investors sought to balance the positives of a generally solid
economic environment and gradually improving employment picture
against concerns about the ability of companies to maintain current
operating margins and deliver the earnings growth necessary to
support current valuations. U.S. large-cap stocks hit an all-time
high in early September before declining somewhat during the
remainder of the quarter. Performance in the small-cap portion of
the market was challenging, with the small-cap market declining
through the end of the quarter by nearly nine percent from highs
set earlier in 2014. Fixed income investors were focused on the
Federal Reserve's plan to end its tapering program in the fourth
quarter and to eventually begin tightening.
"Outside the U.S., questions about the rate of economic growth
in China, an uneven recovery in
countries in the Eurozone, and the durability of economic reform
and growth in Japan weighed on
investor sentiment and markets. A theme in markets this year has
been a disparity of performance and valuations across countries and
regions.
"The U.S. dollar rapidly strengthened during the quarter. The
dollar's value against a basket of six major developed markets
currencies reached its highest point since mid-2010. Investor
anticipation of an eventual move toward Fed tightening, the
relative strength of the U.S. economy compared to other developed
markets economies, and heightened geopolitical tensions contributed
to the dollar's strength. For U.S. investors, the strength of the
dollar hurt the returns of bonds denominated in other
currencies.
"Despite the economic and market uncertainties, our view that
investors who remain disciplined and focused on long-term
objectives will be rewarded remains unchanged. It is helpful to
note that given the size and complexity of global markets, periods
of uncertainty are expected from time to time.
"Although the mixed performance of global markets reduced our
total assets under management this quarter, T. Rowe Price remains
in a very favorable position. Our overall investment performance,
balance sheet, and client service remain strong. We continue to
expand our global investment, distribution, and technology
capabilities to meet client needs, take advantage of future growth
opportunities, and further diversify our assets under management.
In particular, the significant and consistent investments we have
made in our fixed income capabilities position us well to
capitalize on shifts in the fixed income landscape. We also
continue to make substantial investments to further build out our
international equity capabilities."
Other Matters
The financial results presented in this earnings release are
unaudited. The firm expects that it will file its Form 10-Q
Quarterly Report for the third quarter of 2014 with the U.S.
Securities and Exchange Commission later today. The Form 10-Q will
include additional information on the firm's unaudited financial
results at September 30, 2014.
Certain statements in this earnings release may represent
"forward-looking information," including information relating to
anticipated changes in revenues, net income and earnings per common
share, anticipated changes in the amount and composition of assets
under management, anticipated expense levels, estimated tax rates,
and expectations regarding financial results, future transactions,
investments, capital expenditures, and other market conditions. For
a discussion concerning risks and other factors that could affect
future results, see the firm's 2013 Form 10-K.
Founded in 1937, Baltimore-based T. Rowe Price (troweprice.com)
is a global investment management organization that provides a
broad array of mutual funds, subadvisory services, and separate
account management for individual and institutional investors,
retirement plans, and financial intermediaries. The organization
also offers a variety of sophisticated investment planning and
guidance tools. T. Rowe Price's disciplined, risk-aware investment
approach focuses on diversification, style consistency, and
fundamental research.
UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
(in millions, except
per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
Revenues
|
9/30/2013
|
|
9/30/2014
|
|
9/30/2013
|
|
9/30/2014
|
|
Investment advisory
fees
|
$
|
768.3
|
|
|
$
|
890.7
|
|
|
$
|
2,210.9
|
|
|
$
|
2,572.4
|
|
|
Administrative
fees
|
85.4
|
|
|
92.7
|
|
|
258.1
|
|
|
280.8
|
|
|
Distribution and
servicing fees
|
30.5
|
|
|
37.4
|
|
|
84.8
|
|
|
106.5
|
|
|
Net revenue of
savings bank subsidiary
|
.2
|
|
|
—
|
|
|
.6
|
|
|
—
|
|
|
Net
revenues
|
884.4
|
|
|
1,020.8
|
|
|
2,554.4
|
|
|
2,959.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and
related costs
|
291.3
|
|
|
346.4
|
|
|
858.7
|
|
|
991.7
|
|
|
Advertising and
promotion
|
14.7
|
|
|
12.7
|
|
|
58.9
|
|
|
49.9
|
|
|
Distribution and
servicing costs
|
30.5
|
|
|
37.4
|
|
|
84.8
|
|
|
106.5
|
|
|
Depreciation and
amortization of property and equipment
|
22.1
|
|
|
28.3
|
|
|
65.5
|
|
|
83.4
|
|
|
Occupancy and
facility costs
|
32.9
|
|
|
35.9
|
|
|
101.0
|
|
|
107.3
|
|
|
Other operating
expenses
|
67.0
|
|
|
71.4
|
|
|
188.2
|
|
|
210.0
|
|
|
Total operating
expenses
|
458.5
|
|
|
532.1
|
|
|
1,357.1
|
|
|
1,548.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating
income
|
425.9
|
|
|
488.7
|
|
|
1,197.3
|
|
|
1,410.9
|
|
Non-operating
investment income
|
11.6
|
|
|
5.2
|
|
|
31.3
|
|
|
73.4
|
|
Income before income
taxes
|
437.5
|
|
|
493.9
|
|
|
1,228.6
|
|
|
1,484.3
|
|
Provision for income
taxes
|
167.2
|
|
|
190.3
|
|
|
468.6
|
|
|
570.6
|
|
Net income
|
$
|
270.3
|
|
|
$
|
303.6
|
|
|
$
|
760.0
|
|
|
$
|
913.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated
to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
270.3
|
|
|
$
|
303.6
|
|
|
$
|
760.0
|
|
|
$
|
913.7
|
|
|
Less: net income
allocated to outstanding restricted stock
and stock unit holders
|
(2.6)
|
|
|
(3.8)
|
|
|
(6.4)
|
|
|
(10.5)
|
|
|
Net income allocated
to common stockholders
|
$
|
267.7
|
|
|
$
|
299.8
|
|
|
$
|
753.6
|
|
|
$
|
903.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share on
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.03
|
|
|
$
|
1.15
|
|
|
$
|
2.92
|
|
|
$
|
3.47
|
|
|
Diluted
|
$
|
1.00
|
|
|
$
|
1.12
|
|
|
$
|
2.83
|
|
|
$
|
3.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared
per share
|
$
|
.38
|
|
|
$
|
.44
|
|
|
$
|
1.14
|
|
|
$
|
1.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
258.7
|
|
|
259.7
|
|
|
257.9
|
|
|
260.2
|
|
|
Outstanding assuming
dilution
|
266.5
|
|
|
267.4
|
|
|
265.9
|
|
|
268.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
Advisory Revenues (in millions)
|
Three months
ended
|
|
Nine months
ended
|
|
|
9/30/2013
|
|
9/30/2014
|
|
9/30/2013
|
|
9/30/2014
|
Sponsored U.S. mutual
funds
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
$
|
452.0
|
|
|
$
|
537.8
|
|
|
$
|
1,276.3
|
|
|
$
|
1,549.8
|
|
|
Bond and money
market
|
89.3
|
|
|
103.8
|
|
|
275.0
|
|
|
296.0
|
|
|
|
541.3
|
|
|
641.6
|
|
|
1,551.3
|
|
|
1,845.8
|
|
Other investment
portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
187.4
|
|
|
210.8
|
|
|
538.1
|
|
|
610.1
|
|
|
Bond, money market,
and stable value
|
39.6
|
|
|
38.3
|
|
|
121.5
|
|
|
116.5
|
|
|
|
227.0
|
|
|
249.1
|
|
|
659.6
|
|
|
726.6
|
|
Total
|
$
|
768.3
|
|
|
$
|
890.7
|
|
|
$
|
2,210.9
|
|
|
$
|
2,572.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Assets
Under Management (in billions)
|
Three months
ended
|
|
Nine months
ended
|
|
9/30/2013
|
|
9/30/2014
|
|
9/30/2013
|
|
9/30/2014
|
Sponsored U.S. mutual
funds
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
$
|
305.4
|
|
|
$
|
367.5
|
|
|
$
|
289.5
|
|
|
$
|
356.3
|
|
|
Bond and money
market
|
90.8
|
|
|
104.2
|
|
|
91.8
|
|
|
100.6
|
|
|
|
396.2
|
|
|
471.7
|
|
|
381.3
|
|
|
456.9
|
|
Other investment
portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
182.5
|
|
|
205.7
|
|
|
177.3
|
|
|
200.2
|
|
|
Bond, money market,
and stable value
|
57.6
|
|
|
62.1
|
|
|
62.3
|
|
|
62.3
|
|
|
|
240.1
|
|
|
267.8
|
|
|
239.6
|
|
|
262.5
|
|
Total
|
$
|
636.3
|
|
|
$
|
739.5
|
|
|
$
|
620.9
|
|
|
$
|
719.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Under
Management (in billions)
|
|
|
As of
|
|
|
|
|
|
|
|
12/31/2013
|
|
9/30/2014
|
Sponsored U.S. mutual
funds
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
|
|
|
|
|
|
$
|
341.7
|
|
|
$
|
362.0
|
|
|
Bond and money
market
|
|
|
|
|
|
|
93.6
|
|
|
104.4
|
|
|
|
|
|
|
|
|
|
435.3
|
|
|
466.4
|
|
Other investment
portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
|
|
|
|
|
|
195.3
|
|
|
203.5
|
|
|
Bond, money market,
and stable value
|
|
|
|
|
|
|
61.8
|
|
|
61.3
|
|
|
|
|
|
|
|
|
|
257.1
|
|
|
264.8
|
|
Total
|
|
|
|
|
|
|
$
|
692.4
|
|
|
$
|
731.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset portfolios
|
|
|
|
|
|
|
$
|
537.0
|
|
|
$
|
565.5
|
|
Fixed income
portfolios
|
|
|
|
|
|
|
155.4
|
|
|
165.7
|
|
Total
|
|
|
|
|
|
|
$
|
692.4
|
|
|
$
|
731.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Cash Flows Information (in millions)
|
|
|
|
|
|
|
|
|
Nine months
ended
|
|
|
|
|
|
|
|
|
|
|
9/30/2013
|
|
9/30/2014
|
Cash provided by
operating activities, including $95.9 of stock-based
compensation expense in 2014
|
|
|
|
|
|
|
|
|
$
|
1,158.3
|
|
|
$
|
1,216.1
|
|
Cash used in
investing activities, including ($82.6) for additions to
property
and equipment and ($322.0) for net sponsored fund investments in
2014
|
|
|
|
|
|
|
|
|
(138.6)
|
|
|
(415.7)
|
|
Cash used in
financing activities, including common stock repurchases of
($283.7) and dividends paid of ($347.2) in 2014
|
|
|
|
|
|
|
|
|
(205.5)
|
|
|
(553.9)
|
|
Net change in cash
during the period
|
|
|
|
|
|
|
|
|
$
|
814.2
|
|
|
$
|
246.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
Condensed
Consolidated Balance Sheet Information (in millions)
|
|
|
|
|
|
|
|
|
12/31/2013
|
|
9/30/2014
|
Cash and cash
equivalents
|
|
|
|
|
|
|
|
|
$
|
1,398.0
|
|
|
$
|
1,644.5
|
|
Accounts receivable
and accrued revenue
|
|
|
|
|
|
|
|
|
398.8
|
|
|
423.6
|
|
Investments in
sponsored funds
|
|
|
|
|
|
|
|
|
1,611.9
|
|
|
1,936.7
|
|
Property and
equipment
|
|
|
|
|
|
|
|
|
572.9
|
|
|
572.3
|
|
Goodwill
|
|
|
|
|
|
|
|
|
665.7
|
|
|
665.7
|
|
Other investments and
other assets
|
|
|
|
|
|
|
|
|
385.8
|
|
|
525.2
|
|
Total
assets
|
|
|
|
|
|
|
|
|
5,033.1
|
|
|
5,768.0
|
|
Total
liabilities
|
|
|
|
|
|
|
|
|
215.0
|
|
|
540.5
|
|
Stockholders' equity,
260,655,000 common shares outstanding in 2014,
including net unrealized holding gains of $190.9 in 2014
|
|
|
|
|
|
|
|
|
$
|
4,818.1
|
|
|
$
|
5,227.5
|
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/t-rowe-price-group-reports-third-quarter-of-2014-results-756409516.html
SOURCE T. Rowe Price Group, Inc.