01—Abstract
Summary
Summary of the 10-K filed February 5, 2016. Cited figures are marked; the original filing is the authoritative source.
T.
Rowe Price Group, Inc. (TROW) reported 2015 results in its Form 10-K filed February 5, 2016. Assets under management ended 2015 at $763.1 billiona, up $16.3 billion from year-end 2014, driven by $14.7 billion of market appreciation and income and $1.6 billion of net cash inflows. Net revenues rose 5% to $4,200.6 million and investment advisory fees rose 6% to $3,687.3 million, but operating expenses grew 10% to $2,301.7 million, so net operating income was essentially flat at $1,898.9 million.
Net income declined 1% to $1,223.0 millionb, and diluted earnings per share rose 2% to $4.63, helped by a 5% reduction in shares repurchased. The company stated its operating margin was 45.2% in 2015 versus 47.5% in 2014, and it expects continued downward pressure on that margin in 2016 and beyond. The company remains debt-free and returned $2,046.8 million to stockholders in 2015 through a $2.00 special dividend, regular quarterly dividends totaling $2.08 per share, and $987.8 million of share repurchases.
Stockholders' equity fell to $4,762.0 millionc from $5,395.2 million, reflecting those distributions. Management expects 2016 capital expenditures of up to $180 million and an effective tax rate of about 38.7%, and it highlighted a pending change in accounting (ASU 2015-02) that will consolidate more sponsored funds beginning January 1, 2016. Key risks flagged in the filing include the revenue sensitivity to market levels and asset mix, dependence on Price Funds advisory contracts that can be terminated on 60 days' notice, fee waivers on money market funds, intense competition from passive strategies, regulatory changes (including a fiduciary rule, SIFI designation considerations, and MiFID II), and the possibility of a UK exit from the European Union.
02—Key points
Key Highlights
- Assets under management reached $763.1 billion at December 31, 2015, up $16.3 billion, with $14.7 billion from market appreciation and income and $1.6 billion from net cash inflows.
- Net revenues increased 5% to $4,200.6 million, while operating expenses rose 10% to $2,301.7 million, leaving net operating income nearly flat at $1,898.9 million.
- Net income decreased 1% to $1,223.0 million; diluted earnings per share increased 2% to $4.63.
- Operating margin declined to 45.2% in 2015 from 47.5% in 2014, and management expects continued downward pressure on margin in 2016 and beyond.
- The company is debt-free and returned $2,046.8 million to stockholders in 2015, including a $2.00 special dividend and $987.8 million of share repurchases.
- Target-date portfolios generated $16.2 billion of net cash inflows in 2015 and represented $165.7 billion, or 21.7% of managed assets.
- Roughly 45% of assets under management come from third-party financial intermediaries, and a significant majority of revenues depend on Price Funds contracts terminable on 60 days' notice.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 5, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $4.20B$3.98B | +5.5% |
| Operating Expenses | $2.30B$2.09B | +10.1% |
| Operating Income | $1.90B$1.89B | +0.4% |
| Net Income | $1.22B$1.23B | −0.5% |
| EPS (Basic) | $4.74$4.68 | +1.3% |
| EPS (Diluted) | $4.63$4.55 | +1.8% |
| Shares Outstanding (Basic) | 254.60M259.60M | −1.9% |
| Shares Outstanding (Diluted) | 260.90M267.40M | −2.4% |
05—Questions
Frequently Asked Questions
How did T. Rowe Price perform financially in 2015?
Net revenues grew 5% to $4,200.6 million and investment advisory fees rose 6% to $3,687.3 million. Operating expenses grew faster, up 10% to $2,301.7 million, so net operating income was roughly flat at $1,898.9 million. Net income fell 1% to $1,223.0 million, while diluted EPS rose 2% to $4.63.
What drove the growth in assets under management?
Assets under management grew $16.3 billion to $763.1 billion in 2015. Market appreciation and income contributed $14.7 billion and net cash inflows contributed $1.6 billion. Target-date portfolios were a significant source of net inflows, with $16.2 billion originating in those portfolios.
How much capital did the company return to shareholders, and what is its balance sheet position?
The company returned $2,046.8 million in 2015 through recurring dividends of $534.5 million, a $524.5 million special dividend, and $987.8 million of stock repurchases. It remains debt-free, with cash and sponsored portfolio investment holdings of nearly $2.8 billion. Stockholders' equity declined to $4,762.0 million.
What are the main risks to future revenue?
Revenues depend on the value and mix of assets under management, which are affected by market declines, investor withdrawals, relative performance, and shifts toward passive strategies. Fees on money market funds have been voluntarily waived, totaling $47.6 million in 2015. Most Price Funds advisory agreements can be terminated on 60 days' notice, and the filing identifies a possible UK exit from the European Union as a disruptive risk.
What changes are expected in 2016?
Management expects capital expenditures of up to $180 million and an effective tax rate of about 38.7%. The company will adopt ASU 2015-02 on January 1, 2016, which will increase the number of sponsored fund investments it consolidates, and it expects continued fee waivers and downward pressure on operating margin.
06—Continue