T. Rowe Price (TROW) Q2 Earnings: What's In Store?

T. Rowe Price Group, Inc. (NASDAQ:TROW) is scheduled to report second-quarter 2016 results, before the opening bell on Jul 26.

In the last quarter, this investment manager delivered a 12.75% positive earnings surprise, beating the Zacks Consensus Estimate. The figure also recorded 1.8% year-over-year growth. Improved assets under management were a major positive. However, a decline in revenues and elevated operating expenses raised concern.

However, T. Rowe Price posted positive earnings surprise in three of the preceding four quarters. The average being a positive earnings surprise of 3.64% for the trailing four quarters as depicted in the chart below:

T ROWE PRICE Price and EPS Surprise

T ROWE PRICE Price and EPS Surprise | T ROWE PRICE Quote

Factors to Influence Q2 Results

T. Rowe Price’s efforts to improve operating efficiency resulted in year-over-year growth in the top line over the past few years. Though revenue was down in the past quarter, we believe the company is well poised to sustain the uptrend going forward on the back of strong inflow and growing fixed income. Moreover, penetration into the advisory market will increase the company’s growth prospects.

The company is also making efforts to expand internationally as well. Though its time consuming, the company is expected to revive long-term asset growth prospects.

During the quarter, global concerns including oil price volatility, timing of the Federal Reserve’s rate hike, Brexit results and slowdown in domestic growth dominated the investors’ sentiments which in all probability are expected to impact T. Rowe Price as well.

T. Rowe Price’s bottom-line is plagued with challenges like escalating operating expenses. Also, the asset management business is under cyclical pressure and margins are also under strain in the current low rate scenario. Further, the past few quarters witnessed rising expenses and we do not expect this trend to reverse anytime soon.

Though the company did not point out anything related to its cost-control initiatives during the quarter, total advertising and promotion costs for 2016 are anticipated to be on par with 2015 levels. Notably, T. Rowe Price is anticipating capital expenditures in 2016 to be approximately $180 million for property and equipment additions along with technology development.

Most importantly, this investment manager succeeded in impressing the analysts with its level of activities during the quarter. The Zacks Consensus Estimate has moved up around 1% to $1.13 per share over the last 7 days.

Earnings Whispers

However, our proven model does not conclusively show that T. Rowe Price is likely to beat the Zacks Consensus Estimate in the second quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below. We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Zacks ESP: The Earnings ESP for T. Rowe Price is -0.89%. This is because the Most Accurate estimate of $1.12 is below the Zacks Consensus Estimate of $1.13.

Zacks Rank: Though T. Rowe Price’s Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings beat.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as our proven model shows that these have the right combination of elements to post an earnings beat this quarter:

The Earnings ESP for LPL Financial Holdings Inc. (NASDAQ:LPLA) is +2.33% and it carries a Zacks Rank #3. The company is expected to release second-quarter results on Jul 28.

Cullen/Frost Bankers, Inc. (NYSE:CFR) has an Earnings ESP of +0.96% and a Zacks Rank #3. It is expected to report second-quarter results on Jul 27.

The Earnings ESP for Federated Investors, Inc. (NYSE:FII) is +2.13% and it carries a Zacks Rank #3. The company is slated to release second-quarter results on Jul 28.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>