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T. Rowe Price’s second half to hinge on election year politics

Though Baltimore-based money manager T. Rowe Price Group Inc. reported an increase in income and revenue for the second quarter, the company’s performance in the second half of the year hinges on the politics of an election year and a national government that has failed to reach a budget compromise.

President and CEO James A.C. Kennedy led T. Rowe Price to a profit of $206.8 million in the second quarter.

“If they could get their act together and deal with some of these issues and put some of this uncertainty to bed, confidence both corporate and consumer would be a lot higher and the economy would be in a lot better shape,” said James A.C. Kennedy, president and CEO of T. Rowe.

T. Rowe reported net income of $206.8 million, or 79 cents per share, for the second quarter. That compares to $204.7 million, or 76 cents per share, in the corresponding period in 2011.

T. Rowe reported revenue for the quarter of $736.8 million, a 3.2 percent increase from $713.7 million in the corresponding period last year.

Analysts polled by Thomson Reuters were expecting earnings of 81 cents per share on $759 million in revenue.

The company’s operating costs increased by $21.7 million, to $408.8 million, with the increase largely driven by increases in compensation. Earlier this year, shareholders approved raises for T. Rowe executives and the company has also increased its staff by 2.3 percent, to 5,265, from June of last year.

Assets under management decreased $13.1 billion to $541.7 billion, compared to the company’s record $554.8 billion at the end of March.

For the quarter, T. Rowe saw $4.7 billion in net inflows from investors, which was offset by $17.8 billion in market depreciation.

While early 2012 was marked by confidence about improving economic conditions both in the United States and abroad, the second quarter was “testy” and saw a flat U.S. market and down global markets, Kennedy said

Greggory Warren, an analyst with Morningstar Inc. in Chicago, said that given the market conditions, T. Rowe had a “fairly decent” quarter, adding that the company tends to perform above most of its peers and consistently have positive inflows.

“That’s always what sets them apart, and that’s always why they get a premium to the rest of the group. They’re literally a flow machine,” he said.

The company set a record for average assets under management in a quarter, with $538.3 million in the second quarter compared to $514.9 million in the corresponding period last year. Average assets under management takes the quarter’s fluctuations into account.

“Portfolio managers, our invest teams, continue to do generally a really nice job for their clients,” Kennedy said. “When you perform well for the clients, they typically continue to reward you with more flows.”

T. Rowe’s shares lost $1.71, or 2.8 percent, to close Wednesday at $58.97. The shares have traded as high as $66 in the last year.