UPDATE 3-T. Rowe Price profit up, but shares down on flows

Wed Jul 25, 2012 12:53pm EDT

* Profit 79 cents/share vs Street estimate 81 cents

* 2nd qtr total net inflows $4.7 billion

* Total flows included $1.6 bln outflow by institutions

* Shares drop 2.4 pct

By Ross Kerber

July 25 (Reuters) - Money manager T. Rowe Price Group Inc reported a second-quarter profit that rose slightly less than Wall Street expected, as some large customers withdrew funds.

Shares of Baltimore-based T. Rowe were down 2.4 percent at $59.20 in midday trading on Nasdaq. The shares had risen 7.3 percent for 2012 through Tuesday, outpacing many peers and the Dow Jones U.S. Asset Managers Index, which was up 5 percent for the year.

For the three months that ended June 30, T. Rowe Price reported net income of $206.8 million, or 79 cents per share, up from $204.7 million, or 76 cents per share, a year earlier. Analysts on average expected 81 cents a share, according to Thomson Reuters I/B/E/S.

Analysts said the share price decline reflected both earnings, which came in slightly below expectations, and concerns about fund flows.

The company reported a total net inflow of $4.7 billion during the quarter. That included net inflow of $6.3 billion to its mutual funds, mostly from retail investors, and net outflow of $1.6 billion from other portfolios, mostly by institutional investors.

Bigger investors tend to move money quickly amid volatile markets, said Gabelli & Co analyst Macrae Sykes. "The flow bears watching, but I think it is not a surprise given the market overall," he said.

As has been the case with other U.S. money managers that have reported second- quarter earnings so far, T. Rowe's inflows were more than offset by a $17.8 billion drop in assets during the quarter. That left total assets under management at $541.7 billion as of June 30, down from $554.8 billion at March 31 but up from $520.9 billion a year earlier.

BlackRock Inc, the world's largest money manager, said last week that $3.8 billion of customer inflows into its long-term funds in the second quarter was more than offset by the impact of declining markets, which cut $76.8 billion from the value of its assets.

T. Rowe Price Chief Executive James A.C. Kennedy said in an interview that the institutional outflow was not unusual. Some of the outflows reflected subpar performance in certain areas, he said, but also a retreat from riskier assets by institutions, a trend he expects to continue.

He reiterated the company's cautious economic outlook, given the amount of debt owed by public and private institutions. "We assume it will be a slow-growth environment for the next couple of years," he said.

In the company's earnings release, Kennedy said that earlier this year there was evidence that the U.S. economy was starting to gain momentum, China's slowdown would be limited and the European debt crisis would be addressed.

"In contrast, more recent news has called all three of these trends into question," he said.

Upcoming U.S. elections also make American political leaders less likely to address fiscal issues, he said.

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