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T. Rowe shrugs off one-time tax hit, grows AUM and net revenues

T. Rowe Price CEO William Stromberg. (The Daily Record / Maximilian Franz)

T. Rowe Price CEO William Stromberg. (The Daily Record / Maximilian Franz)

T. Rowe Price Group Inc. took an initial hit from tax legislation passed late last year but grew its assets under management to nearly a trillion dollars and boosted profits year-over-year in its fourth quarter.

T. Rowe’s reported net revenues of $1.3 billion for the fourth quarter of 2017 were up from $1.1 billion from the same point in 2016.

The company would have had a year-over-year gain in profit if not for a one-time charge related to recent federal tax law changes; the company’s profit was $347.1 million and diluted earnings per common share were $1.37, both down from the same point in 2016.

“The unique feature here is that that charge is a one-time charge, and ongoing every year we will have a reduced tax rate,” said William Stromberg, president and CEO of T. Rowe Price.

T. Rowe took a one-time charge of $71.1 million related to the new tax law enacted at the end of December. The charge includes $18.9 million for re-measurement of T. Rowe’s deferred tax assets and liabilities and $52.2 million tax liability for mandatory deemed repatriation of foreign earnings.

However, T. Rowe expects to make up that money through a reduction in the corporate tax rate. The company estimates that its effective tax rate next year will be between 24 and 27 percent, where it previously had been paying an effective rate around 37 or 38 percent, Stromberg said.

The company is examining how it can use money from the tax cut to reinvest in the company, reward shareholders and give back to the community, but Stromberg said no plans had been finalized.

T. Rowe’s assets under management grew to $991.1 billion, an increase of $43.2 billion. For the year, the company added $180.3 billion in assets under management, an increase of more than 22 percent on the year.

The nearly $1 trillion of assets under management is the most in the company’s history and represents the strength of the market.

“The markets have been very generous over the past year,” Stromberg said. “Our clients had a really good year overall. More than anything that gives us great satisfaction.”

Much of T. Rowe’s growth has come globally as it seeks to expand offerings and investments outside of the United States. The firm has also focused on developing new products for the global market.

“We’re investing more outside the U.S. in investments and distribution and technology infrastructure than we ever have,” Stromberg said. “It’s a very long-term approach. … I think we’re on a long-term path.”

The firm’s advertising and promotions costs were $33.8 million during the fourth quarter, an increase of more than 24 percent from 2016. For the year, T. Rowe’s advertising and promotion costs were up more than 15 percent from 2016.

The advertising and promotions push increased in the fourth quarter as the market continued to perform well, Stromberg said.

“We tend to increase that budget when we feel the environment is right for it,” he said. “We took it up a little bit in the fourth quarter because we feel it was working. … I think you can continue to expect us to be pretty active on the advertising and promotion side.”

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