T. Rowe Price Group Inc., the money manager that has reported a profit every quarter since going public in 1986, said second-quarter earnings rose 23 percent as stock-market gains boosted assets, offsetting client withdrawals.
Net income increased to $302.4 million, or $1.13 a share, from $245.8 million, or 92 cents, a year earlier, the Baltimore-based company said today in a statement. Earnings beat the $1.12 average estimate of 10 analysts in a Bloomberg survey.
T. Rowe has relied on individual retirement savers and rising stock-market valuations to bolster assets for much of the past year as it struggled with withdrawals by institutional clients. Investors withdrew a net $200 million, including $3.8 billion pulled by institutional clients in the three months ended June 30.
“The investment community overall will be really surprised at a global level at outflows for T. Rowe,” James Shanahan, an analyst at Edward Jones & Co. in St. Louis, said in a telephone interview. “The expectation was that the worst was over.”
The shares fell 2.4 percent to $80.30 at 10:14 a.m. in New York trading, making T. Rowe Price the biggest decliner today in the 18-company Standard & Poor’s index of asset managers and custody banks. It had declined 1.8 percent this year through yesterday, compared with a 1.7 percent gain for the index.
Assets under management increased 6.6 percent in the quarter and 20 percent from a year earlier to a record $738.4 billion. Revenue increased 15 percent from the second quarter of 2013 to $984.3 million, outpacing a 12 percent jump in expenses to $511.2 million.
“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,” Chief Executive Officer James Kennedy said in the statement.
The MSCI ACWI Index of global stocks advanced 4.3 percent during the quarter and more than 20 percent in the year ended June 30.
Of T. Rowe Price’s mutual funds, 76 percent beat their comparable Lipper averages over three and five years, while 84 percent outperformed over 10 years, the company said.
Mutual funds drew $3.6 billion in the quarter, including $4.3 billion gathered by target-date mutual funds, the company’s retirement-oriented products. Kennedy said many retail clients have shifted investments away from direct purchases of individual mutual funds and into target-date products, which spread money over multiple underlying funds.
Institutional withdrawals were concentrated in a small number of clients “repositioning” their investments, Kennedy said today in a telephone interview.
The losses were “frustrating” because the company has made an effort to broaden its distribution and sales efforts recently aimed at making the firm less vulnerable to withdrawals by large individual clients, Kennedy said.
BlackRock Inc., the world’s largest asset manager, said July 16 its second-quarter net income climbed 11 percent to $808 million. Investors deposited a net $38 billion into its funds.