T. Rowe Price Earnings: Better Than Expected Results Offset by Dour Near-Term Flow Forecasts
While there was little in wide-moat-rated T. Rowe Price’s TROW third-quarter results that would alter our long-term view of the firm, we expect to lower our $110 per share fair value estimate 5%-10% to account for the impact that continued equity and credit market headwinds will have on results in both the near and long term.
The company’s adjusted earnings per share of $2.17 for the September quarter was well above the FactSet consensus estimate of $1.78 per share and our own $1.83 forecast. Most of the difference was the result of higher reported adjusted non-GAAP operating income (which adjusts for acquisition-related costs, supplemental savings plan liabilities, and other expenses and income) than we had been forecasting for the period.
T. Rowe Price closed out September 2023 with $1.346 trillion in managed assets, down 3.8% sequentially but up 9.6% year over year. Net outflows of $17.4 billion during the quarter were in line with our expectations, with the company’s growth equity heavy platform reporting outflows of $19.7 billion. Management also noted that outflows would be higher in the fourth quarter, contrary to our expectations for outflows to continue to ease.
With average AUM being up 3.4% year over year during the third quarter, T. Rowe Price reported a 1.5% increase in fee revenue when compared with the prior year’s period. Net revenue (which includes capital-allocation-based income and administrative fees) rose 5.2% year over year during the September quarter but was still down 2.9% on a year-to-date basis when compared with last year’s results. We now expect full-year revenue to be down at the lower end of our 1%-3% forecasted top-line decline for 2023.
As for profitability, year-to-date adjusted GAAP operating margins of 33.6% were 820 basis points lower than the year-ago period, as operating expenses increased at a much higher rate than net revenues. Adjusted non-GAPP operating margins were 36.5% for the same period, an increase of 230 basis points.
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