Earnings Call: T. Rowe Price Reports Growth Amid Challenges in Q3 2024
T. Rowe Price (NASDAQ: TROW) announced its financial results for the third quarter of 2024 on October 24, 2024. Assets under management (AUM) increased to $1.63 trillion, reflecting a 3.9% increase compared to the previous quarter. Despite a net outflow of $12.2 billion, the company reported an adjusted earnings per share (EPS) of $2.57, representing an 18% increase compared to the same period last year. CEO Rob Sharps emphasized the growth of the company's active ETF business and innovative retirement solutions, while CFO Jen Dardis highlighted the strong performance of the target date business and a $71 million share buyback.
Key Points
- T. Rowe Price's AUM rose to $1.63 trillion, reflecting a 3.9% increase from Q2 2024.
- The company experienced a net outflow of $12.2 billion; however, they expect to halve outflows in 2024 compared to 2023, excluding a significant sub-advisor variable allocation termination.
- Adjusted EPS increased to $2.57 due to higher average AUM and lower tax rates.
- T. Rowe Price returned over $1.1 billion to shareholders in the first nine months of 2024.
- The company is focusing on growth opportunities in retirement and alternative strategies while managing expenses.
Company Outlook T. Rowe Price is preparing for strategic investments to support growth in 2025, focusing on retirement and alternative strategies. The company plans to align expense growth with revenue growth, targeting a preliminary range of 6% to 8% for 2025.
Negative Highlights The company acknowledged that net outflows in the third quarter were disappointing. There is a major termination notice that could impact future outflows.
Positive Highlights Net inflows in the target date business were strong, totaling $3.6 billion. The ETF business saw nearly $1 billion in inflows. Sharps expects positive trends in active equities and mutual funds, anticipating further improvements in 2025.
Shortcomings The company reported ongoing challenges from performance issues that began in the fourth quarter of 2021 and peaked in 2022.
Q&A Highlights Sharps addressed concerns regarding organic growth and a negative performance cycle, affirming confidence in the strength of their research strategies. Dardis discussed managing expense growth in alignment with revenue momentum and provided a preliminary expense growth range for 2025.
In summary, T. Rowe Price navigates a complex financial environment with a strategic focus on growth and expense management. With significant investments in ETFs and retirement offerings, the company is poised to capitalize on market opportunities and improve performance metrics in the upcoming quarters. Executives express optimism about the future despite recent outflows and performance challenges, expecting greater participation in the next quarter's earnings cycle.
InvestingPro Insights T. Rowe Price's recent financial results indicate that the company has maintained a strong financial position amid challenges. According to InvestingPro data, the company's market capitalization stands at $24.45 billion, reflecting its significant presence in the asset management sector.
One of the most notable InvestingPro tips is that T. Rowe Price has maintained dividends for 39 consecutive years. This impressive track record aligns with the company's commitment to returning value to shareholders, as evidenced by over $1.1 billion in returns in the first nine months of 2024. The current dividend yield of 4.51% further highlights TROW's attractiveness for income-focused investors.
Another relevant InvestingPro tip emphasizes that 11 analysts have upwardly revised their earnings estimates for the upcoming period. This positive sentiment among analysts aligns with the company's reported 18% increase in adjusted EPS and management's optimistic outlook regarding reduced outflows in 2024.
The company's P/E ratio of 13.25 suggests that T. Rowe Price may be undervalued relative to its earnings potential. This assessment is further underscored by a PEG ratio of 0.5 for the twelve months ending in Q2 2024. Given the company's focus on strategic investments in retirement and alternative strategies, this could indicate an attractive entry point for investors.
It is important to note that InvestingPro offers additional tips and insights that can provide a more comprehensive view of T. Rowe Price's financial health and market position. Investors looking for deeper analysis can explore the 7 additional InvestingPro tips available for TROW.