2010 Q4 Earnings, Week 2: Good Quarter for Asset Management Firms

Both AUM and investment-advisory fees continue to rise for T. Rowe, leading President and Chief Executive James Kennedy to say that the company has "largely recovered" from the economic crisis. T. Rowe reported a profit of $190.8 million, or $0.72 a share (versus analysts' expectations of $0.69/share), on a 19% revenue rise to $647.5 million. In the fourth quarter a year earlier, net income was $152 million, or $0.57 cents.

Earlier in the week, on Tuesday, investor willingness to put money into riskier securities pushed BlackRock (BLK) past analysts' expectations, with diluted earnings per share at $3.42 versus consensus EPS estimates of $2.90. The world's largest asset manager, clearly benefiting from its acquisition of Barclays Global Investors, broke its quarterly earnings record as profits rose 107% and annual revenue soared 157%.

Legg Mason (LM) on Wednesday announced a 37% jump in profits for the third quarter of 2011 along with a 5% rise in revenues, thanks to an increase in fees. But the firm also reported continuing outflows: $12.9 billion from bond funds and $3.3 billion from stock funds in the quarter. Profits totaled $61.6 million, or $0.41 per share, versus $0.28 a year ago.

Also on Wednesday, Piper Jaffray (PJC) reported strong sales and better-than-expected net revenues as the investment bank's capital-markets unit saw an 18% increase in the quarter to $151 million. The firm saw profits of $9.4 million, or $0.49 per share, for the fourth quarter of 2010 versus $12.3 million, or $0.63, in the same period of 2009. Piper Jaffray's results included a $9.1 million after-tax charge that reduced net income by $0.48 per share for a charge linked to Piper Jaffray restructuring of its European operations. Excluding that charge, the company earned $0.97 cents per share.

Another company that released Q4 2010 earnings on Thursday, Janus Capital Group (JNS), beat both EPS and revenue estimates, reporting net income of $65.9 million, or $0.36 per share, compared with net income of $37.0 million, or $0.20 per share, in the fourth quarter of 2009. Revenue was $275.7 million versus $250.6 million in the year-ago period and $243.8 million in the third quarter for the mutual fund company. This performance beat analysts' earnings estimates of $0.21 cents a share and revenue estimates of $262.7 million.

Although Q4 was strong for asset managers, KBW's analysts nevertheless viewed the group's performance as lackluster in the last year.

"Considering the growth in AUM and earnings in 2010 and new business trends that have, overall, generally been positive, the overall performance of asset manager stocks in 2010 was lackluster at best, although it varies widely from stock to stock," they said. "In general, we think investor unease with regard to the economic outlook has weighed on the group, while several stocks, including AllianceBernstein, Artio, BlackRock, and Janus were negatively impacted by concerns with regard to organic growth."

"To some degree," the KBW analysts added, "we attribute the lackluster performance for much of the year to the fact that over the course of 2010, many investors saw a lack of incremental catalysts, such as better flows or margins, or were generally concerned with the near-term outlook and fears of a double-dip recession. BlackRock, in particular, saw its premium valuation erode as investors became concerned with the ability to grow an asset manager with $3.4 trillion in AUM, among other things. Franklin Resources, despite generating strong organic flows and EPS growth, has been weighed down by concerns regarding future fixed income flow trends."

Read a roundup of week one of 2010 Q4 earnings at AdvisorOne.com.