Thursday, July 27, 2006

T. Rowe beats the Street despite stock market swings
Baltimore Business Journal - 4:53 PM EDT Thursday
Continuing its recent pattern of record profits, T. Rowe Price Group Inc. beat Wall Street estimates for its second quarter despite a weak stock market.
The Baltimore-based money manager reported second-quarter earnings of $136 million, up nearly a third from the second quarter of 2005. T. Rowe (NASDAQ: TROW) earned 49 cents per share, beating the consensus estimate of analysts surveyed by Thomson Financial by 3 cents. The company split its stock in June, issuing one new share for every share outstanding.
T. Rowe's second-quarter net revenues hit a record $446 million, up 23 percent from a year ago. And assets under management hit an all-time high of $294 billion, an increase of just under $1 billion from the end of the first quarter.
The company prospered during a quarter that was tough for money managers. On Tuesday, T. Rowe's neighbor and competitor Legg Mason Inc. (NYSE: LM) reported that assets under management dropped slightly as Legg worked to integrate its huge acquisition of Citigroup's asset management business.
Investors poured $7.7 billion of new money into T. Rowe during the quarter. But that was nearly offset by a market-driven decline of $6.9 billion in the value of T. Rowe's assets. Similarly, $2.6 billion of new money flowed into T. Rowe's mutual funds in the second quarter, but that was more than offset by a $4.6 billion decline in the value of fund assets.
"Our strong second-quarter performance was achieved during a period of increasing stock market volatility in which global equity markets swung considerably and the decline in U.S. stocks erased a large portion of their gains from the first quarter of the year," said chairman George Roche in a news release.
T. Rowe has been selectively scooping up assets from companies looking to trim or unload their money management operations. That trend continued in the second quarter, as $615 million in assets poured into T. Rowe from its acquisition of Caterpillar Inc.'s Preferred Group Of Mutual Funds. T. Rowe also added $115 million of separate account assets from Caterpillar. Construction equipment maker Caterpillar (NYSE: CAT) had begun the investment offerings for employees' retirement plans, later opening them up to the public.
The new money coming in from Caterpillar helped boost T. Rowe's assets under management despite the market-value declines. T. Rowe pointed out that with no debt and more than $1 billion in cash and liquid investments, it can make other purchases as opportunities arise. T. Rowe also bought back 4 million shares of its stock in the second quarter to boost share price as investors shied away from money-management stocks. The company has continued buying back stock into July.
Compensation and related costs at T. Rowe rose by 27 percent from a year ago, as the company hired more people and their pay and benefit costs increased. T. Rowe spent 12 percent more on advertising in the second quarter than it did a year ago, but expects to trim ad spending from that level in the third quarter.
Roche said T. Rowe thinks the financial markets can make "moderate progress" in 2006, but "equity investing in the near term may be less rewarding than investors had become accustomed to in recent years."
T. Rowe shares jumped 6 percent on the earnings news Thursday morning to $39.15 and closed at $39.03.

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