T. Rowe Price Group Inc. posted fourth-quarter revenue of $787.3 million and assets under management of $576.8 billion at the end of 2012, the company announced Tuesday.
Fourth-quarter net income was $232.0 million, or diluted earnings per share of 88 cents. Despite an earnings boost of 23 percent over the fourth quarter of 2011, when net income was $188.4 million, or 73 cents per share, the Baltimore-based investment manager’s earnings fell just short of average analysts’ expectations of 89 cents.
“These results are somewhat weak,” James Shanahan, an equity analyst at Edward Jones & Co. in St. Louis, told Bloomberg in a telephone interview. “Outflows are relatively rare for T. Rowe and for it to happen now is a surprise.”
President and CEO James A.C. Kennedy, however, said in a statement he was “cautiously optimistic” about the investment environment moving into 2013, and pleased with overall performance.
“Our balance sheet remains very strong, we have about $2 billion of cash and investments, we have no long-term debt, and we have about $3.8 billion of stockholders’ equity,” Kennedy added in an interview. “So the firm is very strong both in terms of our people and our reputation, and our financials.”
Annual results for 2012 include net revenue of $3.0 billion, net income of $883.6 million, and diluted earnings per common share of $3.36 — an increase of 15 percent from the $2.92 per share earned in 2011.
However, the fourth-quarter income and market appreciation of $6.6 billion were partially offset by net cash outflows of $4.2 billion, a departure from the firm’s past success in avoiding client redemptions. Kennedy said the withdrawals were the result of lackluster performance in some international portfolios — which caused investors to pull money out — as well as extra caution throughout the marketplace in response to public uncertainty over the situation in Washington.
Throughout the recession, cash outflows from equity funds have plagued other money management firms. But T. Rowe has largely been able to maintain inflows into equities for the past five years.
“There’s been a lot of de-risking, with concern about politicians and their lack of ability to make decisions,” Kennedy said. “And there’s been need for money, so people have been taking money out of the marketplace … and they take it primarily out of equities. So given that we were the beneficiary of those flows over [the past five years], it’s not too surprising that when they are de-risking, we’ll lose some of those assets.”
Recently, Kennedy said, money has flowed back into portfolios.
“Ever since the last week of the year of 2012, there’s been some semblance of hope that Washington could start making some decisions and avoid what was feared about the fiscal cliff,” he said.
He added, however, that he still expects some volatility, given what he called the apparent “ineptitude of our politicians.”
T. Rowe Price has placed much emphasis on its retirement-oriented investment products, which had $88.9 billion in assets under management at the end of December. Last year, net cash inflows totaled $17.2 billion, including $10.1 billion originating in the target-date retirement portfolios. Assets under management increased 18 percent last year to $576.8 billion over 2011.
The company said it has expanded its staff by 1.9 percent since the end of 2011, and Kennedy said there are a variety of positions open, mostly in the Baltimore area, from tech support to client services.
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.
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.
T. Rowe Price has posted a profit every quarter since going public in 1986, and Kennedy said the key indicators are measures that track performance over time. “A lot of people perform well over some period of time,” he said. “And then, they take a lot of risk in their portfolio and then they trip.”
Shares of T. Rowe Price closed Tuesday at $71.61 on Nasdaq, down 57 cents or 0.79 percent for the day.