(Source: PRNewswire-FirstCall)
BALTIMORE, July 24 /PRNewswire-FirstCall/ -- T. Rowe Price Group, Inc. today reported its second quarter 2009 results, including net revenues of $442.2 million, net income of $100.0 million, and diluted earnings per share on common stock of $.38. Net revenues in the second quarter of 2008 were $586.5 million when net income was $162.2 million and diluted earnings per share was $.59. The previously reported 2008 second quarter diluted earnings per share on common stock of $.60 was adjusted to reflect the retrospective application of new financial reporting guidance.
Investment advisory revenues were down 27%, or $135 million, from the comparable 2008 quarter. Assets under management increased from $268.8 billion at March 31, 2009, to $315.6 billion at June 30, including $189.0 billion in the T. Rowe Price mutual funds distributed in the United States and $126.6 billion in other managed investment portfolios. Net cash inflows in the second quarter of 2009 totaled $3.5 billion. Higher market valuations and income added $43.3 billion to assets under management in the 2009 quarter.
Results for the first half of 2009 include net revenues of $826.7 million, net income of $148.2 million, and diluted earnings per share of common stock of $.57, down just over 50% from $1.15 per share in the first half of 2008. Assets under management are up $39.3 billion, or 14% from the beginning of 2009. Net cash inflows from investors totaled $8.0 billion, and net market appreciation and income added $31.3 billion, during the year-to-date period.
Financial Highlights
Relative to the second quarter of 2008, investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the United States decreased 29%, or $100.7 million, to $248.8 million. Average mutual fund assets in the second quarter of 2009 were $179.6 billion, a decrease of 26% from the average for the comparable 2008 quarter. Mutual fund assets at June 30, 2009 were $189.0 billion, up $30.2 billion from the end of March 2009, and $9.4 billion higher than the second quarter 2009 average.
Net inflows to the mutual funds were $4.1 billion during the second quarter of 2009. U.S. stock and blended asset funds had net inflows of $1.9 billion, the bond and money market funds added $1.3 billion, and the international and global stock funds added $.9 billion. The New Asia and New Income funds together attracted net inflows of $.9 billion. Higher market valuations and income increased mutual fund assets under management by $26.1 billion during the 2009 quarter.
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 $111.5 million in the 2009 quarter, a decrease of more than $34 million from the comparable 2008 quarter. Higher market valuations and income increased the assets under management in these portfolios by $17.2 billion during the second quarter of 2009, offset by modest net outflows of $.6 billion. Investors outside the United States account for 10% of the firm's assets under management.
The target-date retirement investment portfolios continue to be a significant source of assets under management. During the 2009 quarter, net inflows of $1.8 billion originated in these portfolios. Assets in the target-date retirement portfolios were $33.1 billion at June 30, 2009, accounting for 10% of the firm's assets under management and 17% of its mutual fund assets.
Operating expenses were $288.3 million in the second quarter of 2009, down $39.6 million from the 2008 quarter. Compensation and related costs decreased $18.3 million, or more than 8%, from the comparable 2008 quarter, primarily due to a reduction in the interim accrual for the expected annual bonus compensation program. At June 30, 2009, the firm employed 4,875 associates, down 9.5% from the end of 2008 due to year-to-date attrition, retirements and the workforce reduction in April 2009.
Advertising and promotion expenditures were down 32%, or $6.5 million, compared to the second 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 third quarter is expected to be comparable to the third quarter of 2008, and full year 2009 spending is expected to be about 25% lower than in 2008.
Other operating expenses decreased $15.3 million, or 31% from the comparable 2008 quarter. The firm's cost control efforts have resulted in expense reductions across the board, including in professional fees, travel and related costs, and other third party services.
Overall, net operating income for the second quarter of 2009 decreased $104.7 million, or 40.5%, to $153.9 million from the comparable 2008 quarter. Net operating income in the second quarter of 2009 includes a net cost of $3 million for the workforce reduction in April 2009. However, the firm expects to realize a net savings of approximately $17 million over the subsequent four quarters from the workforce reduction, and roughly $6 million in annualized expenses will be saved for the firm's sponsored mutual funds from these actions.
In the second quarter of 2009, the firm recognized $2.3 million of capital gains on the disposition of certain corporate mutual fund holdings and $.5 million of other than temporary impairments. Unrealized losses of $.7 million remain in the firm's mutual fund investment portfolio at June 30, 2009.
The second quarter 2009 provision for income taxes as a percentage of pretax income is 38.2%, up slightly from the prior estimate for the full year 2009 of 38.0%. The new estimate of the effective tax rate for the full year 2009 is 37.9%.
Management Commentary
James A.C. Kennedy, the company's Chief Executive Officer and President, commented: "The firm's investment advisory results relative to our peers remain strong, with at least 84% of the T. Rowe Price funds across their share classes surpassing their comparable Lipper averages on a total return basis for the one-, three- and five-year periods ended June 30, 2009, and 78% outperforming for the 10-year period. In addition, T.
