T. Rowe Price Group Inc., the asset manager that has posted a profit every quarter since going public in 1986, reported earnings that missed analysts’ estimates as clients pulled money for the first time in five quarters.
Net income in the fourth quarter increased 23 percent to $229.9 million, or 88 cents a share, the Baltimore-based company said today in a statement. Profit missed the 89 cents-a-share average estimate of 13 analysts in a Bloomberg survey after customers withdrew $4.2 billion in the quarter.
“These results are somewhat weak,” James Shanahan, an equity analyst at Edward Jones & Co. in St. Louis, said in a telephone interview. “Outflows are relatively rare for T. Rowe and for it to happen now is a surprise.”
Chief Executive Officer James Kennedy said in an interview that redemptions from mutual funds were “heavily loaded in December” when investors were waiting for political leaders to strike a budget deal. Clients returned to stock funds this month, said Kennedy, who has relied on popular retirement-oriented products and strong performance among active fund managers to attract customers.
T. Rowe fell 0.8 percent to close at $71.61 in New York. The shares had risen 21 percent in the past year through yesterday, compared with the 30 percent gain for Standard & Poor’s 20-company index of asset managers and custody banks.
With about three-quarters of its assets in equities, T. Rowe has increased the money it oversees for four straight years even as U.S. mutual-fund investors have shunned stocks for bonds. U.S. stock mutual funds got net deposits for the second straight week in January as investors started to shift into equities, according to the Investment Company Institute.
“In January, people have moved back into equities. It’s true for the industry and it’s true for us,” Kennedy said.
Institutional withdrawals were concentrated in products that invest outside the U.S., he said.
T. Rowe’s assets rose 18 percent in 2012 to $576.8 billion, helped by a 13 percent gain by global stocks as measured by the MSCI AC World Index. Customer withdrawals in the fourth quarter included about $400 million from mutual funds and $3.8 billion from institutional and other accounts.
Investors withdrew $1.4 billion from stock and blended mutual funds in the quarter while depositing $1 billion into bond and money-market funds. T. Rowe last had net withdrawals in the third quarter of 2011 and has recorded only four quarters of redemptions since 2000, Kennedy said.
The increase in assets helped boost revenue 17 percent to $787.3 million, driven by a 19 percent jump in investment advisory fees. Revenue growth outpaced the 13 percent increase in expenses to $426.1 million.
Kennedy said the U.S. economy appears poised for stronger growth, with the automobile industry and housing gathering “reasonable momentum.” U.S. politicians agreed in January to raise taxes and delayed the imposition of automatic spending cuts while they seek a longer-term budget agreement.
“All we need is a little confidence and some decision making coming out of Washington,” Kennedy said.
T. Rowe mutual funds outperformed 74 percent of their peers in 2012, 78 percent over the past three years and 84 percent over five years, based on data compiled by Lipper, the company said.
BlackRock Inc., the world’s largest asset manager, said Jan. 17 its fourth-quarter net income rose 24 percent as the New York-based company attracted $47 billion in net deposits. Denver-based Janus Capital Group Inc. said Jan. 23 fourth-quarter net income fell 13 percent as clients withdrew $3.5 billion and poor performance reduced fees.
David Giroux, manager of the $13.8 billion T. Rowe Price Capital Appreciation Fund, was named research firm Morningstar Inc.’s fund manager of the year in the allocation category. The fund returned 15 percent in 2012.