Charles Schwab's stock turns higher after earnings beat, signs of 'green shoots'

By Tomi Kilgore

Asset-management revenue beats expectations, but trading revenue and deposit account fees miss

Shares of Charles Schwab Corp. pulled a sharp U-turn into positive territory Monday, after the financial-services and brokerage company reported first-quarter earnings that fell again but topped expectations, amid signs of a budding recovery.

"[R]ecognizing that there are certain environmental and geopolitical risks that remain, the green shoots of a turnaround in the environment are appearing, and we're seeing it positively impacting virtually every area at Schwab, from investor engagement to net new assets to client cash re-aligning to capital building, and of course, to revenue and earnings," said Chief Executive Walt Bettinger, according to an AlphaSense transcript of the post-earnings call with analysts.

The stock (SCHW) dropped as much as 2.8% in the premarket after the results were reported, before bouncing sharply as the opening bell rang at 9:30 a.m. Eastern. It was recently up 3% in morning trading, putting it on track to snap a four-session losing streak.

The company reported before the open net income of $1.36 billion, or 68 cents a share, down from $1.6 billion, or 83 cents a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share were down to 74 cents from 93 cents, marking the fourth straight quarter of declines, but topped the FactSet consensus of 73 cents.

Revenue fell 7.3% to $4.74 billion, which was slightly above the FactSet consensus of $4.71 billion.

Net interest revenue was down 19.4% to $2.23 billion, again marginally topping the FactSet consensus of $2.22 billion, while asset-management and administration fees increased 20.6% to $1.35 billion to beat expectations of $1.31 billion, and trading revenue declined 8.4% to $817 million to miss expectations of $824.8 million.

Bank deposit-account fees were up 21.2% to $183 million but missed the FactSet consensus of $191.8 million.

Clients' daily average trades grew 1.1% from a year ago and jumped 14.8% from the previous quarter, to 5.96 million, while revenue per trade fell 7.8% from last year and 4.7% from last quarter to $2.25.

"In the first quarter, we saw robust trading activity across the board, including strong continued engagement from our Ameritrade clients," said President Rick Wurster.

Schwab had acquired TD Ameritrade in a deal that closed in October 2020.

Core net new assets for the quarter totaled $95.6 billion in the quarter, including $45 billion in March.

Client transactional sweep cash balances ended March at $399.2 billion. William Blair analyst Jeff Schmitt explained that while that is down from $403 billion in February, it was line line with levels seen before the late-2023 seasonal build.

"Holding around the $400 billion level since September is a good sign and an indication that cash sorting has largely abated," Schmitt wrote in a note to clients.

Overall, Schmitt said it was a "strong" quarter as the earnings outlook is improving.

"We expect these trends to continue in the coming quarters, which should result in accelerating core earnings power through 2025," Schmitt wrote.

The stock has tacked on 4.9% year to date, while the Financial Select Sector SPDR exchange-traded fund (XLF) has gained 7% and the S&P 500 has advanced 7.5%.

-Tomi Kilgore

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04-15-24 1120ET

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