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T. Rowe Price Earnings: Equity Outflows and Negative Operating Leverage Continue to Weigh

Maintaining $110 fair value estimate on T. Rowe Price stock.

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Securities In This Article
T. Rowe Price Group Inc
(TROW)

T. Rowe Price Stock at a Glance

T. Rowe Price Earnings Update

There was little in wide-moat T. Rowe Price’s TROW first-quarter results that would alter our long-term view of the firm, and we expect to leave our $110 fair value estimate in place. We view the shares as being about fairly valued right now, despite the selloff after the earnings release.

T. Rowe Price closed the March quarter with $1.342 trillion in managed assets, up 5.3% sequentially but down 13.5% year over year. Net outflows of $16.1 billion during the quarter were in line our expectations, with T. Rowe Price’s growth-equity-heavy platform reporting outflows of $23.5 billion (above the $18.2 billion quarterly run rate for equity outflows during 2022). Multi-asset inflows of $7.1 billion during the March quarter were welcome news, however, for a segment that was pressured most of last year.

With average assets under management down 15.2% year over year during the first quarter, T. Rowe Price reported a 17.5% decline in net revenue compared with the prior-year period. With the company likely to face a more difficult second quarter for growth equities, we believe top-line growth will remain negative for the full year, even with T. Rowe Price facing easier comparisons as it moves through the back half of 2023.

First-quarter adjusted operating margin of 34.1% was 1,050 basis points lower than the year-ago period, as operating expenses declined at a slower rate (6.9%) year over year than new revenue. Much of this was due to base compensation costs being relatively flat with the prior-year period even as distribution, servicing, and product-related costs declined.

T. Rowe Price also committed more to marketing and technology during the quarter, which we believe it should be doing in a more difficult operating environment like we’ve seen the past year. Adjusted earnings per share of $1.69 for the first quarter surpassed the FactSet consensus estimate of $1.65 and our own $1.63 forecast.

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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About the Author

Greggory Warren, CFA

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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