01—Abstract
Summary
Summary of the 10-K filed February 13, 2020. 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, primarily T. Rowe Price Associates and T. Rowe Price International Ltd. Its revenues and net income depend largely on the value and composition of its assets under management (AUM).
At December 31, 2019, AUM reached $1,206.8 billiona, up $244.5 billion from 2018, driven by market appreciation and income of $231.3 billion and net cash inflows of $13.2 billion. Target date retirement products totaled $292.4 billion, or 24.2% of managed assets. Financial results improved in 2019.
Net revenues rose to $5,617.9 millionb from $5,372.6 million, and net income attributable to T. Rowe Price Group was $2,131.3 million, compared with $1,837.5 million in 2018. Diluted earnings per share were $8.70, versus $7.27.
Non-GAAP diluted earnings per share were $8.07c. Operating margin was 42.5%, down from 44.0% in 2018, which the company attributes mainly to higher supplemental savings plan compensation expense. Non-operating income of $540.3 million, largely from market gains, also boosted earnings.
The company reported $5,568.1 milliond in cash and investments in T. Rowe Price products and stated it remains debt-free. The filing highlights ongoing headwinds, including the shift from active to passive investing, fee pressure, and regulatory change.
Management expects 2020 non-GAAP operating expenses to grow 6% to 9%. Two pending ERISA and Section 36(b) lawsuits are in discovery, and the company says it cannot predict their outcome.
02—Key points
Key Highlights
- AUM of $1,206.8 billion at December 31, 2019, up $244.5 billion from $962.3 billion, including $13.2 billion in net cash inflows
- Net revenues of $5,617.9 million, up 4.6%, and net income attributable to T. Rowe Price Group of $2,131.3 million, up from $1,837.5 million
- Diluted EPS of $8.70 (GAAP) and $8.07 (non-GAAP), compared with $7.27 and $7.15 in 2018
- Operating margin of 42.5% in 2019, down from 44.0% in 2018, driven by supplemental savings plan compensation growth
- Average annualized fee rate of 46.1 basis points, down from 46.8 basis points in 2018
- Dividends of $3.04 per share in 2019, up from $2.80, plus $708.8 million in share repurchases
- 2020 non-GAAP operating expense growth guidance of 6% to 9%, and an effective tax rate estimate of 23% to 26%
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 13, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $5.62B$5.37B | +4.6% |
| Operating Expenses | $3.23B$3.01B | +7.3% |
| Operating Income | $2.39B$2.36B | +1.1% |
| Net Income | $2.13B$1.84B | +16.0% |
| EPS (Basic) | $8.82$7.41 | +19.0% |
| EPS (Diluted) | $8.70$7.27 | +19.7% |
| Shares Outstanding (Basic) | 235.40M242.20M | −2.8% |
| Shares Outstanding (Diluted) | 238.60M246.90M | −3.4% |
05—Questions
Frequently Asked Questions
What drove the increase in assets under management in 2019?
AUM rose $244.5 billion to $1,206.8 billion. Market appreciation and income, net of distributions not reinvested, contributed $231.3 billion, and net cash inflows contributed $13.2 billion. Target date retirement products accounted for $9.8 billion of the net inflows.
Why did the operating margin decline in 2019?
The filing attributes the decline from 44.0% to 42.5% primarily to higher compensation expense growth related to the supplemental savings plan, compared with the percentage growth in net revenues. Operating expenses rose 7.3% to $3,230.9 million.
How much of the company's revenue depends on the U.S. mutual funds?
Investment advisory fees from U.S. mutual funds were $3,452.5 million in 2019, out of total investment advisory fees of $5,112.5 million. The filing also states that a significant majority of revenues are based on contracts with the U.S. mutual funds, which can be terminated on short notice.
What pending legal matters does the company disclose?
Two class actions are in the discovery phase. One is an ERISA lawsuit concerning the T. Rowe Price 401(k) Plan, filed February 14, 2017. The other is a Section 36(b) complaint, Zoidis v. T. Rowe Price Assoc., Inc., alleging excessive management fees. The company believes the claims are without merit and cannot predict the outcome or estimate a possible loss.
Does the company carry debt, and how does it return capital to shareholders?
The filing states the company remains debt-free with ample liquidity. In 2019 it paid $733.6 million in dividends and repurchased $708.8 million of stock, returning $1,442.4 million in total. Since the end of 2016, it has returned $4.3 billion to stockholders.
06—Continue