Charles Schwab's profit is halved but beats analyst estimates

By Steve Gelsi

Stock drops as company cites 'softer volumes' during the year, but one analyst praises an overall strong quarter

Charles Schwab Corp.'s stock trimmed losses Wednesday as Wall Street sifted through both positive and negative indicators in its fourth-quarter earnings update.

Schwab's (SCHW) fourth-quarter profit dropped by about half to $1.05 billion, or 51 cents a share, from $1.97 billion, or 97 cents a share, in the year-ago quarter.

Adjusted fourth-quarter profit of 68 cents a share beat the FactSet consensus estimate of 64 cents a share.

Fourth-quarter revenue dropped by 19% to $4.46 billion from just under $5.5 billion in the year-ago quarter and missed the analyst estimate of $4.49 billion.

Charles Schwab's stock fell 1.3% to close at $63.45 a share. Earlier, the stock had been down as much as 5%.

William Blair analyst Jeff Schmidt reiterated an outperform rating on Schwab and flagged the company's average daily pace of cash realignment, which shifted to inflows of $720 million per trading day, versus outflows of $420 million in October and peak outflows of $1.7 billion in February.

While the company's long-term debt rose "a fair amount" and trading revenues remained weak, the quarter was strong overall, with recovering organic growth, Schmidt said.

Andrew McGee, an analyst at Third Bridge, said, "While there was some short-term softening in net new asset growth in the fourth quarter, our specialists believe Schwab will continue to drive net new assets over the longer term due to its strong reputation for high-quality product offerings and customer service."

In a prepared statement, Schwab cited "a slightly different trading mix and softer volumes" that caused trading revenue to drop during the year.

Schwab said its December core net new assets exceeded $40 billion, for an annualized growth rate of 6%.

Schwab reported a $15 billion increase in December in transaction-sweep cash, which is money awaiting its next action or destination.

Cash-realignment activity slowed nearly 80% during the second half of the year.

Looking back at 2023, the company navigated "an uneven environment with shifting views on the trajectory of the U.S. economy, persistent geopolitical unrest and a temporary disruption within the regional-banking sector," said Walt Bettinger, Schwab's co-chairman and chief executive.

Before Wednesday's moves, Schwab's stock was up 24% in the past three months, compared with a 9% gain by the S&P 500 SPX.

-Steve Gelsi

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01-17-24 1608ET

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