(Source: PRNewswire-FirstCall)
BALTIMORE, April 22 /PRNewswire-FirstCall/ -- T. Rowe Price Group, Inc. today reported its first quarter 2009 results, including net revenues of $384.5 million, net income of $48.2 million, and diluted earnings per share of $.19. These results include non-cash charges of $35.6 million for the "other than temporary" impairment of certain of the firm's investments in sponsored mutual funds. This non-operating charge, after related tax benefits, reduced by $.08 what would have been diluted earnings per share of $.27 in the first quarter. Net revenues in the first quarter of 2008 were $559.1 million when net income was $151.5 million and diluted earnings per share was $.55.
Investment advisory revenues were down nearly 35%, or $163.3 million, from the comparable 2008 first quarter. Assets under management decreased 3% since the beginning of the year, to $268.8 billion at March 31, 2009, including $158.8 billion in the T. Rowe Price mutual funds distributed in the United States and $110.0 billion in other managed investment portfolios. Net cash inflows in the first quarter of 2009 totaled $4.5 billion. Lower market valuations, net of income, more than offset cash inflows and reduced assets under management by $12.0 billion. Assets under management are down one-third from their peak of $400 billion at the start of 2008.
The severe downturn in global financial markets during 2008, and through the early part of 2009, has had a dramatic effect on investor returns and led to a significant reduction in the firm's assets under management and revenues. In response, and in an effort to be vigilant about expense levels, the firm initiated a series of expense-control measures through 2008 that were accelerated with the equity market's steep fourth quarter 2008 decline. These efforts included yesterday's decision to reduce the firm's workforce by 288 associates, or 5.5%. The short-term cost resulting from severance and related expenses will lower operating earnings by about $2.5 million in the second quarter of 2009. However, a net savings of approximately $17 million is expected to be realized by the firm over the subsequent four quarters, and roughly $6 million in annualized expenses will be saved for the firm's mutual funds. Although most areas of the firm are affected, the majority of staff reductions are in the phone, processing, and technology areas where lower volumes and a reduced number of projects has resulted in capacity that exceeds current business needs. No portfolio managers and six of the firm's 340 investment professionals were impacted. Through attrition, retirements, and the workforce reduction, total staffing is now down 8.6% from the beginning of the year. Total expense savings could reduce 2009 operating expenses by as much as $120 million from the 2007 level of spending.
Financial Highlights
Relative to the first quarter of 2008, investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the United States decreased 36.5%, or $121.9 million, to $211.7 million. Average mutual fund assets were $157.3 billion, down 32% from the average for the first quarter of 2008. Mutual fund assets at March 31, 2009, were $158.8 billion, down $5.6 billion or 3% from the end of 2008, but $1.5 billion higher than the first quarter 2009 average. Net inflows to the mutual funds were $1.8 billion during the first quarter of 2009. The stock funds had net inflows of $1.2 billion, including $.7 billion to the Equity Index 500 fund and $.4 billion to the Value fund. Bond and money funds had $.6 billion of net inflows. Decreases in market valuations, net of income, lowered mutual fund assets under management by $7.4 billion during the 2009 quarter.
The target-date retirement investment portfolios continue to be a significant source of assets under management and were the source of substantially all of the mutual fund net inflows during the first quarter of 2009. Assets in the target-date retirement portfolios were $26.4 billion at March 31, 2009, and now account for almost 10% of the firm's assets under management and 16% of its mutual fund assets.
Investment advisory revenues earned from other managed investment portfolios, consisting of institutional separate accounts, sub-advised funds, sponsored investment funds which are offered to investors outside the U.S., and variable insurance portfolios, were $95 million in the 2009 quarter, a decrease of more than $41 million from the comparable 2008 quarter. Net inflows of $2.7 billion, primarily from U.S. and international institutional investors, were more than offset by lower market valuations that reduced these assets under management $4.6 billion during the quarter. Investors outside the United States now account for 10% of assets under management.
Operating expenses were nearly $274 million in the first quarter 2009, down $55 million from the 2008 first quarter. Compensation and related costs decreased $32 million, or more than 15%, from the comparable 2008 quarter, primarily due to a substantial reduction in the interim accrual for the expected annual bonus compensation program. Before the workforce reduction, the firm employed 5,230 associates at March 31, 2009.
Advertising and promotion expenditures decreased nearly $14 million, or 38%, from the first quarter of 2008 and are down $8 million from the fourth quarter of 2008. The firm has reduced advertising and promotion expense in response to the change of investor sentiment in this uncertain and volatile market environment. Advertising and promotion spending for the second quarter of 2009 is expected to be about 30% lower than the first quarter, and full year 2009 spending is expected to be about 25% lower than 2008.
Other operating expenses in the first quarter were down $11.3 million, or 25% from the first quarter of 2008. The firm's cost savings efforts have resulted in reductions in consulting and professional fees, travel and related costs, and other third party services.
Financial asset valuations and interest rate declines that continued through the first quarter resulted in a non-operating investment loss of $36.0 million in the 2009 quarter.
