T. Rowe Price TROW delivered third-quarter 2020 adjusted earnings per share of $2.55, which outpaced the Zacks Consensus Estimate of $2.53. The reported figure also climbed 19.7%, year on year.

Results were driven by higher revenues, backed by an upsurge in investment advisory fees. Also, assets under management (AUM) improved. However, escalating expenses were an undermining factor.

Including certain non-recurring items, net income was $643.2 million or $2.73 per share compared with the $545.9 million or $2.23 per share recorded in the prior-year quarter.

Revenues Improve, Expenses Flare Up

Net revenues in the third quarter increased 11.9% to $1.6 billion from the year-ago quarter. This upswing primarily resulted from higher investment advisory fees, along with elevated administrative, distribution and servicing fees. The net revenue figure, however, lagged the Zacks Consensus Estimate of $1.61 billion.

Investment advisory fees climbed 12.7% year over year. Also, administrative, distribution and servicing fees jumped 2.6% year over year to $126.5 million.

Investment advisory revenues earned from T. Rowe Price mutual funds distributed in the United States were up 6.6% year over year to $939.5 million. Investment advisory revenues earned from other investment portfolios managed by the company increased 25.4% from the prior-year quarter to $529.8 million.

Total adjusted operating expenses flared up 8.5% year over year to $830.5 million in the reported quarter. Rise in salaries and annual bonus accrual, along with continued investments, mainly resulted in this uptick. Including certain one-time items, expenses came in at $866.9 million, up 12.9%.

The company revised expected non-GAAP operating expense growth to 4-6% from 3-6%. For 2021, expenses are expected in the range of 6-9%.

As of Sep 30, 2020, T. Rowe Price employed 7,635 associates, 3.7% higher than the prior year.

Assets Grow, Liquidity Position Strong

As of Sep 30, 2020, total AUM grew 16.3% year over year to $1.31 trillion. During the September-end quarter, net market appreciation and gains were $94.6 billion, while net cash outflow was $5.3 billion after client transfers.

T. Rowe Price remains debt free with substantial liquidity, including cash and sponsored portfolio investment holdings of $6.1 billion as of Sep 30, 2020, which enable the company to keep on investing.

Capital-Deployment Activity

During the reported quarter, T. Rowe Price repurchased 1.1 million shares of its common stock for $141.9 million.

For 2020, the company projects capital expenditure of $230 million, comprising more than three-fourth for technology development.

Our Viewpoint

T. Rowe Price put up an impressive show during the July-September quarter on stellar revenues. The company has the potential to benefit from growth in domestic and global AUM. Though higher operating expenses have impacted T. Rowe Price and the pandemic-induced economic slowdown is a major concern, the bank’s debt-free position and higher return on earnings, as a whole, make us confident of its robust fundamentals.

T. Rowe Price Group, Inc. Price, Consensus and EPS Surprise

T. Rowe Price Group, Inc. price-consensus-eps-surprise-chart | T. Rowe Price Group, Inc. Quote

Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Investment Managers

Cohen & Steers’ CNS third-quarter 2020 adjusted earnings of 67 cents per share surpassed the Zacks Consensus Estimate of 60 cents. Moreover, the bottom line was 3.1% higher than the year-ago reported figure. Results primarily benefited from an improvement in revenues, partly offset by higher expenses. Despite net inflows, the company recorded a marginal fall in AUM balance.

Franklin Resources Inc. BEN reported fourth-quarter fiscal 2020 (ended Sep 30) adjusted earnings of 56 cents per share, which missed the Zacks Consensus Estimate of 69 cents. Results also compared unfavorably with the earnings of 71 cents per share recorded in the prior-year quarter. The company’s results displayed revenue growth, with support from solid rise in investment management fees during the quarter. Also, higher AUM was a positive. However, rise in expenses and net outflows were the undermining factors.

BlackRock, Inc.’s BLK third-quarter adjusted earnings of $9.22 per share handily surpassed the Zacks Consensus Estimate of $7.81. The figure reflected a rise of 29% from the year-ago quarter’s number. Results benefited from an improvement in revenues, partly offset by higher expenses. Further, long-term net inflows resulted in a rise in AUM balance, which was a major positive for the company.

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