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T. Rowe sees inflows, earnings surge — but stock price sinks

Buoyed by new deposits in retirement funds, asset manager reports nearly 60% rise in profits in second quarter

T. Rowe Price Group Inc.’s stock price fell the most in two months after the Baltimore-based fund manager reported second quarter earnings that fell short of analysts’ estimates.

Nevertheless, net income climbed to $158.5 million, or 59 cents a share, from $100 million, or 38 cents, a year earlier, the company said today in a statement. Analysts expected earnings of 61 cents, according to the average of 18 estimates in a Bloomberg survey. T. Rowe Price fell as much as 5.2 percent in Nasdaq Stock Market trading, the biggest decline since May 20.

T. Rowe Price’s assets fell 6.7 percent in the quarter to $391.1 billion as the MSCI AC World Index tumbled 13 percent in May and June because of the European debt crisis and concerns about slowing global economic growth. Individual investors started pulling back after markets became more volatile in May, James Kennedy, the company’s chief executive officer, said today in an interview.

“Retail investors are still shocked by what has happened in the past two years,” Kennedy said. “The retail flows backed off as we got into the second half of the quarter.”

T. Rowe Price declined $1.95, or 3.9 percent, to $47.49 at 10:24 a.m. T. Rowe has declined 11 percent this year, compared with the 9.5 percent decline in the Standard & Poor’s index of 15 asset managers and custody banks.

Investors deposited $5.1 billion into T. Rowe Price’s funds in the quarter, including $1.6 billion into retirement funds that account for about 12 percent of the firm’s assets. BlackRock Inc., based in New York, this week reported net outflows of $30.4 billion as investors removed money from cash and quantitative funds, while Denver-based Janus Capital Group Inc. had $1.3 billion in net withdrawals in the three months ended June 30.

“T. Rowe’s business is more skewed to the retirement channel and is holding up better than most of their peers,” Michael Kim, an analyst with Sandler O’Neill & Partners LP in New York, said in an interview before the results were announced. He expected T. Rowe Price to earn 61 cents a share.

T. Rowe Price’s net revenue rose 31 percent to $577.4 million, driven by a 36 percent increase in average assets under management from a year earlier. Operating expenses rose 13 percent, driven by a 47 percent increase in advertising costs and higher compensation.