01—Abstract
Summary
Summary of the 10-K filed February 13, 2019. Cited figures are marked; the original filing is the authoritative source.
T.
Rowe Price Group, Inc. is a financial services holding company providing global investment management services through subsidiaries, principally T. Rowe Price Associates and T. Rowe Price International Ltd. At December 31, 2018, assets under management were $962.3 billiona, down $28.8 billion from the end of 2017, as net cash inflows of $13.2 billion were more than offset by $42.0 billion of market depreciation and losses.
Target date retirement products drew $12.0 billionb of net inflows and totaled $230.4 billion, or 23.9% of managed assets. The filing describes headwinds including passive and alternative investments taking market share from active strategies, and it states that the firm remains debt-free with ample liquidity. Financial results improved despite the market decline.
Net revenues rose to $5,372.6 millionc from $4,854.9 million in 2017, and net operating income rose to $2,361.4 million from $2,108.8 million. Diluted earnings per share were $7.27 versus $5.97 in 2017, and non-GAAP adjusted diluted earnings per share were $7.15 versus $5.43. The company cited the lower U.S. federal corporate tax rate as a benefit, and its effective tax rate fell to 25.8% from 36.9%.
The company expects 2019 non-GAAP operating expenses to grow 4% to 7%. Capital return remained significant. Stock repurchases totaled $1,099.6 milliond in 2018 for 10.8 million shares, and regular dividends were $2.80 per share, up from $2.28.
The Board approved an additional 10 million share repurchase authorization on February 12, 2019. Pending litigation includes an ERISA class action over the T. Rowe Price 401(k) Plan and a Section 36(b) excessive-fee complaint over certain funds; management believes both claims are without merit and cannot predict the outcome.
02—Key points
Key Highlights
- Assets under management ended 2018 at $962.3 billion, down $28.8 billion, with net cash inflows of $13.2 billion offset by $42.0 billion of market depreciation and losses.
- Net revenues increased to $5,372.6 million from $4,854.9 million, and net operating income increased to $2,361.4 million from $2,108.8 million.
- Diluted EPS was $7.27 versus $5.97 in 2017; adjusted diluted EPS (non-GAAP) was $7.15 versus $5.43.
- Effective tax rate fell to 25.8% from 36.9%, reflecting the U.S. federal corporate tax rate cut from 35% to 21% under Tax Reform.
- Target date retirement products had $12.0 billion of net inflows in 2018 and $230.4 billion in assets, representing 23.9% of managed assets.
- Returned $1,794.3 million to stockholders in 2018 through $694.7 million of recurring dividends and $1,099.6 million of stock repurchases; dividends were $2.80 per share.
- The company reports no debt and cites a 2019 non-GAAP operating expense growth outlook of 4% to 7%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 13, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $5.37B$4.85B | +10.7% |
| Operating Expenses | $3.01B$2.75B | +9.7% |
| Operating Income | $2.36B$2.11B | +12.0% |
| Net Income | $1.84B$1.50B | +22.7% |
| EPS (Basic) | $7.41$6.07 | +22.1% |
| EPS (Diluted) | $7.27$5.97 | +21.8% |
| Shares Outstanding (Basic) | 242.20M241.20M | +0.4% |
| Shares Outstanding (Diluted) | 246.90M245.10M | +0.7% |
05—Questions
Frequently Asked Questions
How did assets under management change in 2018?
Assets under management fell $28.8 billion to $962.3 billion at December 31, 2018. Net cash inflows were $13.2 billion, but market depreciation and losses, including distributions not reinvested, reduced assets by $42.0 billion.
Why did earnings per share rise even though assets under management declined?
The filing attributes the 21.8% increase in diluted EPS to higher operating income and the benefit of a lower corporate tax rate under U.S. Tax Reform. Average assets under management rose 14.0% to $1,036.5 billion, and investment advisory fees increased 12.9%.
What are the main risks the filing identifies?
Key risks include market declines reducing asset values, investor shifts toward passive or alternative products, fee pressure from competition, reliance on contracts with U.S. mutual funds that can be terminated on 60 days' notice, cybersecurity and operational failures, and regulatory changes such as those affecting retirement, fiduciary standards, and MiFID II.
What litigation is pending against the company?
An ERISA class action filed February 14, 2017 alleges breaches of fiduciary duty related to the T. Rowe Price 401(k) Plan, and a Section 36(b) complaint filed April 27, 2016 alleges excessive management fees on certain funds. The company believes both claims are without merit and states that it cannot predict the outcome or estimate a possible loss.
What capital return actions did the company take and plan?
In 2018 the company repurchased 10.8 million shares for $1,099.6 million and paid $2.80 per share in dividends, up from $2.28. On February 12, 2019, the Board approved an authorization to repurchase an additional 10 million shares.
06—Continue