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T. Rowe Price Earnings: Better Than Expected Results Offset by Dour Near-Term Flow Forecasts

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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.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Greggory Warren

Strategist
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Greggory Warren, CFA, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the traditional U.S.-and Canadian-based asset managers, as well as Berkshire Hathaway.

Before assuming his current role in 2017, Warren covered the financial-services sector as a senior analyst since late 2008. Prior to that time, he covered non-alcoholic beverage manufacturers and distributors, packaged food firms, food service distributors, and tobacco companies. Before joining Morningstar in 2005, Warren worked as a buy-side equity analyst for more than seven years, covering consumer staples and consumer cyclicals.

Warren holds a bachelor's degree in accounting and English from Augustana College. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Society of Chicago. During 2014-19, Warren was selected to participate on the analyst panel at Berkshire Hathaway’s annual meeting, asking questions directly of Warren Buffett and Charlie Munger. The analyst panel was disbanded ahead of Berkshire’s 2020 annual meeting. Warren also ranked second in the investment services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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