BALTIMORE, July 24, 2014
/PRNewswire/ -- T. Rowe Price Group, Inc. (NASDAQ-GS: TROW)
today reported its 2014 second quarter results, including net
revenues of $984.3 million, net
income of $305.8 million, and diluted
earnings per common share of $1.13.
On a comparable basis, net revenues were $854.3 million, net income was $247.8 million, and diluted earnings per common
share was $.92 in the second quarter
of 2013.
Investment advisory revenues for the second quarter of 2014 were
up $115.6 million to $855.3 million
from the comparable 2013 period, as average assets under management
increased $92.1 billion, or 15%.
During the second quarter of 2014, market appreciation and income
of $27.2 billion, offset slightly by
net cash outflows from investors of $.2
billion, lifted assets under management to a record
$738.4 billion at June 30, 2014.
The firm's assets under management at June 30, 2014, include
about $185 billion of asset
allocation portfolios, of which $120.9
billion are in target-date retirement funds and $19.7 billion are in target-date retirement
trusts. These target-date retirement portfolios were the source of
$5.2 billion of the firm's net cash
flows in the second quarter of 2014, including $4.3 billion that originated in its target-date
retirement funds.
Results for the first half of 2014 include net revenues of
$1.9 billion, net income of
$610.1 million, and diluted earnings
per share of $2.25, an increase of
23% from the $1.83 per share earned
in the first half of 2013. This increase includes $.07 per share on higher gains realized from the
sale of certain of the firm's investments in sponsored
funds. The proceeds were used to provide additional seed
capital to other sponsored funds in support of the firm's
distribution efforts outside the United
States. Assets under management have increased $46.0 billion from the end of 2013, including
$37.4 billion added from market
appreciation and income and $8.6
billion from net cash inflows.
From an investment performance standpoint, 76% of the T. Rowe
Price mutual funds across their share classes outperformed their
comparable Lipper averages on a total return basis for the three-
and five-year periods ended June 30, 2014, 84% 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 80% 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
June 30, 2014.
Financial Highlights
Investment advisory revenues
earned in the second quarter of 2014 from the T. Rowe Price mutual
funds distributed in the United
States were $613.4 million, an
increase of 18% from the comparable 2013 quarter. Average mutual
fund assets under management in the second quarter of 2014 were
$455.9 billion, an increase of 19%
from the average in the second quarter of 2013.
Mutual fund assets increased $20.5
billion during the second quarter of 2014 and ended the
quarter at $470.9 billion. Investors
added net inflows of $3.6 billion,
including $3.3 billion into the bond
funds and $.6 billion into the stock
and blended asset funds. The money market funds had net outflows of
$.3 billion. Market appreciation and
income added $16.9 billion to mutual
fund assets during the quarter.
Investment advisory revenues earned in the second quarter of
2014 from the other investment portfolios were $241.9 million, an increase of $21.6 million from the comparable 2013 quarter.
Average assets under management in these portfolios in the second
quarter of 2014 were $261.3 billion,
an increase of $18.7 billion, or 8%,
from the average in the second quarter of 2013. Assets under
management in these portfolios increased $6.5 billion during the second quarter of 2014 to
$267.5 billion at June 30, 2014,
as higher market valuations and income of $10.3 billion were offset in part by net cash
outflows of $3.8 billion. These net
cash outflows came from both fixed income and equity mandates and
were concentrated among a small number of institutional investors
and subadvisory clients. Investors domiciled outside the United States accounted for 6.2% of the
firm's assets under management at June 30, 2014.
Money market advisory fees and other fund expenses voluntarily
waived by the firm to maintain positive yields for investors in the
second quarter of 2014 were $15.0
million, an increase of $3.1
million from the comparable 2013 quarter. For the first six
months of 2014, the firm has waived $29.3
million in such fees compared with $22.9 million in the 2013 period. The firm
expects it will continue to voluntarily waive such fees for the
remainder of the year.
Administrative fee revenues increased $7.2 million to $93.6
million in the second 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 is generally
offset by similar changes in operating expenses.
Operating expenses were $511.2
million in the second quarter of 2014, up $55.7 million from the comparable 2013 quarter.
Compensation and related costs have increased $38.1 million from the second quarter of 2013,
due primarily to higher salaries and benefits from base salary
increases and added headcount, and increases in the interim accrual
for year-end bonus compensation, temporary personnel, and
stock-based compensation. The firm has increased its average staff
size by 5.4% from the second quarter of 2013. At June 30,
2014, the firm employed 5,749 associates.
Advertising and promotion costs were $14.6 million in the second quarter of 2014, a
decrease of $4.5 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 5%-10% lower than such costs in
2013.
Occupancy and facility costs, together with depreciation and
amortization expense, were $64.0
million in the second quarter of 2014, up $7.0 million compared to the second quarter of
2013. Nearly half 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. These increases were offset
by the non-recurrence of $2.8 million
in costs incurred in the 2013 quarter to terminate certain facility
leases.
Other operating expenses in the second quarter of 2014 were up
$7.8 million from the comparable 2013
quarter, due to increased business demands and the firm's continued
investment in its operating capabilities. These costs include those
related to the firm's defined contribution recordkeeping business,
information and third-party service costs, travel costs, and
consulting and professional fees.
Net non-operating investment income in the second quarter of
2014 of $26.1 million increased
$24.7 million from the 2013 quarter,
including $11.6 million in gains
realized from the sale of certain sponsored fund investments in the
2014 period. The balance of the increase is primarily a result of
higher investment gains recognized on the firm's other investment
portfolios and higher dividends earned on its sponsored investment
portfolios.
The firm's effective tax rate for the second quarter of 2014 is
38.7%. The firm currently estimates that its effective rate for the
full-year 2014 will be about 38.5%.
T. Rowe Price remains debt-free with ample liquidity, including
cash and sponsored portfolio investment holdings of $3.5 billion. During the first half of 2014, the
firm has expended nearly $57 million
to repurchase 726,000 shares of its common stock, and invested
about $60 million in capitalized
technology and facilities from existing cash balances. The firm
currently expects total capital expenditures for property and
equipment for 2014 to be approximately $150
million, which will be funded from operating
resources.
Management Commentary
James A.
C. Kennedy, the company's chief executive officer and
president, commented: "We're five years into an economic recovery
and while the pace of economic growth in the U.S. continues to be
modest, it's been strong enough to repair most corporate balance
sheets and to expand profit margins to record highs. Industrial
production and employment continue to rise. The recent quarter
continues this trend, with capital spending, job growth and
consumer demand improving. The Fed continues to scale back its
incremental stimulus, and should complete its asset purchase
program by October. Thus, the focus has turned to when the Fed will
begin to raise interest rates.
"Meanwhile, European economic growth continues to gradually
improve off of a low base, though concerns remain over the slow
progress toward economic reform. Japan is making strides towards real economic
recovery, and emerging market economies are adjusting to a slower
pace of growth.
"Against this backdrop, global financial markets generally
produced very solid second quarter and year-to-date returns. For
the quarter, the S&P rose 5.2%, the MSCI European Equity Index
rose 3.7% and the MSCI Emerging Markets Index bounced back from a
weaker first quarter rising 6.7%. Global bonds also performed well,
reflecting lower interest rates and the more modest global growth
expectations.
"The aggressive monetary easing around the world on the part of
multiple governments since 2009 has encouraged investors to take on
increasing risk in search of income and returns. As such, prices of
stocks and bonds have been bid higher and bargains are now harder
to find. Meanwhile, volatility in the markets is abnormally low,
and complacency is high. We expect global economic growth to
continue to grind ahead at a modest pace. Thus, this market
environment will likely continue. However, given current valuations
it is a good time to be mindful of risks.
"T. Rowe Price remains in a very favorable position. Although we
have seen some fluctuation in our net client flows in the recent
few years, our overall investment performance and client service
have been very strong. We continue to broaden and deepen our
investment and distribution capabilities around the world.
And we remain keenly focused on attracting, developing and
retaining our talent, so that we can continue to perform for our
clients."
Other Matters
The financial results presented in this
release are unaudited. The firm expects that it will file its Form
10-Q Quarterly Report for the second 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 June 30, 2014.
Certain statements in this press 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
|
|
Six months
ended
|
Revenues
|
6/30/2013
|
|
6/30/2014
|
|
6/30/2013
|
|
6/30/2014
|
|
Investment advisory
fees
|
$ 739.7
|
|
$ 855.3
|
|
$ 1,442.6
|
|
$ 1,681.7
|
|
Administrative
fees
|
86.4
|
|
93.6
|
|
172.7
|
|
188.1
|
|
Distribution and
servicing fees
|
28.1
|
|
35.4
|
|
54.3
|
|
69.1
|
|
Net revenue of
savings bank subsidiary
|
.1
|
|
-
|
|
.4
|
|
-
|
|
Net
revenues
|
854.3
|
|
984.3
|
|
1,670.0
|
|
1,938.9
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Compensation and
related costs
|
288.3
|
|
326.4
|
|
567.4
|
|
645.3
|
|
Advertising and
promotion
|
19.1
|
|
14.6
|
|
44.2
|
|
37.2
|
|
Distribution and
servicing costs
|
28.1
|
|
35.4
|
|
54.3
|
|
69.1
|
|
Depreciation and
amortization of property
|
|
|
|
|
|
|
|
|
and
equipment
|
21.9
|
|
28.0
|
|
43.4
|
|
55.1
|
|
Occupancy and
facility costs
|
35.1
|
|
36.0
|
|
68.1
|
|
71.4
|
|
Other operating
expenses
|
63.0
|
|
70.8
|
|
121.2
|
|
138.6
|
|
Total operating
expenses
|
455.5
|
|
511.2
|
|
898.6
|
|
1,016.7
|
|
|
|
|
|
|
|
|
|
Net operating
income
|
398.8
|
|
473.1
|
|
771.4
|
|
922.2
|
Non-operating
investment income
|
1.4
|
|
26.1
|
|
19.7
|
|
68.2
|
Income before income
taxes
|
400.2
|
|
499.2
|
|
791.1
|
|
990.4
|
Provision for income
taxes
|
152.4
|
|
193.4
|
|
301.4
|
|
380.3
|
Net income
|
$ 247.8
|
|
$ 305.8
|
|
$ 489.7
|
|
$ 610.1
|
|
|
|
|
|
|
|
|
|
Net income allocated
to common stockholders
|
|
|
|
|
|
|
|
|
Net income
|
$ 247.8
|
|
$ 305.8
|
|
$ 489.7
|
|
$ 610.1
|
|
Less: net income
allocated to outstanding
|
|
|
|
|
|
|
|
|
restricted stock and stock
unit holders
|
(2.0)
|
|
(3.4)
|
|
(3.8)
|
|
(6.7)
|
|
Net income allocated
to common stockholders
|
$ 245.8
|
|
$ 302.4
|
|
$ 485.9
|
|
$ 603.4
|
|
|
|
|
|
|
|
|
|
Earnings per share on
common stock
|
|
|
|
|
|
|
|
|
Basic
|
$ .95
|
|
$ 1.16
|
|
$ 1.89
|
|
$ 2.32
|
|
Diluted
|
$ .92
|
|
$ 1.13
|
|
$ 1.83
|
|
$ 2.25
|
|
|
|
|
|
|
|
|
|
Dividends declared
per share
|
$ .38
|
|
$ .44
|
|
$ .76
|
|
$ .88
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares
|
|
|
|
|
|
|
|
|
Outstanding
|
258.2
|
|
260.7
|
|
257.5
|
|
260.5
|
|
Outstanding assuming
dilution
|
266.2
|
|
268.7
|
|
265.6
|
|
268.7
|
|
|
|
|
|
|
|
|
|
Investment
Advisory Revenues (in millions)
|
Three months
ended
|
|
Six months
ended
|
|
|
6/30/2013
|
|
6/30/2014
|
|
6/30/2013
|
|
6/30/2014
|
Sponsored U.S. mutual
funds
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
$
|
425.4
|
|
|
$
|
514.7
|
|
|
$
|
824.3
|
|
|
$
|
1,012.0
|
|
Bond and money
market
|
94.0
|
|
|
98.7
|
|
|
185.7
|
|
|
192.2
|
|
|
519.4
|
|
|
613.4
|
|
|
1,010.0
|
|
|
1,204.2
|
Other
portfolios
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
179.6
|
|
|
202.4
|
|
|
350.7
|
|
|
399.3
|
|
Bond, money market,
and stable value
|
40.7
|
|
|
39.5
|
|
|
81.9
|
|
|
78.2
|
|
|
220.3
|
|
|
241.9
|
|
|
432.6
|
|
|
477.5
|
Total
|
$
|
739.7
|
|
|
$
|
855.3
|
|
|
$
|
1,442.6
|
|
|
$
|
1,681.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Assets
Under Management (in billions)
|
Three months
ended
|
|
Six months
ended
|
|
6/30/2013
|
|
6/30/2014
|
|
6/30/2013
|
|
6/30/2014
|
Sponsored U.S. mutual
funds
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
$
|
289.3
|
|
|
$
|
355.0
|
|
|
$
|
281.4
|
|
|
$
|
350.6
|
|
Bond and money
market
|
93.2
|
|
|
100.9
|
|
|
92.3
|
|
|
98.7
|
|
|
382.5
|
|
|
455.9
|
|
|
373.7
|
|
|
449.3
|
Other
portfolios
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
178.3
|
|
|
198.6
|
|
|
174.7
|
|
|
197.5
|
|
Bond, money market,
and stable value
|
64.3
|
|
|
62.7
|
|
|
64.7
|
|
|
62.4
|
|
|
242.6
|
|
|
261.3
|
|
|
239.4
|
|
|
259.9
|
Total
|
$
|
625.1
|
|
|
$
|
717.2
|
|
|
$
|
613.1
|
|
|
$
|
709.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Under
Management (in billions)
|
|
|
As of
|
|
|
|
|
|
|
|
12/31/2013
|
|
6/30/2014
|
Sponsored mutual
funds in the U.S.
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
|
|
|
|
|
|
$
|
341.7
|
|
|
$
|
367.6
|
|
Bond and money
market
|
|
|
|
|
|
|
93.6
|
|
|
103.3
|
|
|
|
|
|
|
|
|
435.3
|
|
|
470.9
|
Other
portfolios
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset
|
|
|
|
|
|
|
195.3
|
|
|
204.9
|
|
Bond, money market,
and stable value
|
|
|
|
|
|
|
61.8
|
|
|
62.6
|
|
|
|
|
|
|
|
|
257.1
|
|
|
267.5
|
Total
|
|
|
|
|
|
|
$
|
692.4
|
|
|
$
|
738.4
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock and blended
asset portfolios
|
|
|
|
|
|
|
$
|
537.0
|
|
|
$
|
572.5
|
Fixed income
portfolios
|
|
|
|
|
|
|
155.4
|
|
|
165.9
|
Total
|
|
|
|
|
|
|
$
|
692.4
|
|
|
$
|
738.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Cash Flows Information (in millions)
|
|
Six months
ended
|
|
|
6/30/2013
|
|
6/30/2014
|
Cash provided by
operating activities, including $61.8 of stock-based compensation
expense in 2014
|
|
$
|
727.9
|
|
|
$
|
725.6
|
Cash used in
investing activities, including ($59.7) for additions to property
and equipment and ($120.2) for net sponsored fund investments in
2014
|
|
(57.2)
|
|
|
(187.8)
|
Cash used in
financing activities, including dividends paid of ($231.7) in
2014
|
|
(93.9)
|
|
|
(231.5)
|
Net change in cash
during the period
|
|
$
|
576.8
|
|
|
$
|
306.3
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheet Information (in millions)
|
12/31/2013
|
|
|
6/30/2014
|
Cash and cash
equivalents
|
$
|
1,398.0
|
|
|
$
|
1,704.3
|
Accounts receivable
and accrued revenue
|
|
398.8
|
|
|
|
426.0
|
Investments in
sponsored funds
|
|
1,611.9
|
|
|
|
1,791.7
|
Property and
equipment
|
|
572.9
|
|
|
|
576.2
|
Goodwill
|
|
665.7
|
|
|
|
665.7
|
Other investments and
other assets
|
|
385.8
|
|
|
|
505.1
|
Total
assets
|
|
5,033.1
|
|
|
|
5,669.0
|
Total
liabilities
|
|
215.0
|
|
|
|
395.4
|
Stockholders' equity,
263,017,000 common shares outstanding in 2014,
including net
unrealized holding gains of $226.1 in 2014
|
$
|
4,818.1
|
|
|
$
|
5,273.6
|
SOURCE T. Rowe Price Group, Inc.