Q4 2024 Earnings Summary
- T. Rowe Price saw improved gross sales across almost all distribution channels and geographies in 2024, achieving the best gross sales year since 2021, and is building strong momentum going into 2025, with a stronger net pipeline and fewer mandates at risk, positioning the company to reduce net outflows and return to organic growth.
- The company experienced significant growth in fixed income, including notable insurance wins, growth in alternatives, and an inflection point in its ETF business; they had their third-best year ever in retirement date funds with $16 billion in net inflows, indicating robust performance in key growth areas.
- T. Rowe Price is focusing on structural cost savings to offset fee pressure and fund investments in new capabilities and initiatives, targeting 2% to 3% annual savings, which positions the company to enhance profitability while investing in areas such as retirement outside the U.S., U.S. wealth, ETFs, and alternatives.
- T. Rowe Price continues to experience net outflows, and management cannot predict when they will return to net inflows. Despite improvements, net outflows remain significant, and the CEO acknowledges difficulty in forecasting a return to positive flows due to factors both within and outside their control.
- The firm expects continued pressure on fees, anticipating further decreases in fee rates. Management notes that this fee compression could negatively impact revenue growth, and structural expense reductions to offset this pressure will take time to implement, potentially affecting profitability in the near term.
- The challenging environment for active management, with difficulties in generating alpha due to market conditions favoring a narrow group of large-cap stocks, hinders T. Rowe Price's ability to outperform and attract inflows. Management admits that the active equity market is experiencing outflows industry-wide, impacting their ability to grow assets under management.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +11% (Q4 2024: $1,824.5M vs Q4 2023: $1,642M) | Revenue growth was driven by strong increases in asset under management and enhanced investment advisory fee revenue. The pattern mirrors earlier periods where higher AUM boosted advisory fees, as seen in Q3 analyses, and its continued strength propelled the 11% lift in total revenue. |
Operating Income (EBIT) | +47% (Q4 2024: $568.4M vs Q4 2023: $387.2M) | Operating income improved markedly due to significant margin expansion. Despite a moderate 11% revenue increase, effective cost control and efficiency improvements resulted in a 47% rise in EBIT, echoing trends from previous quarters where expense management outpaced revenue growth. |
Net Income | ~+0.5% (Q4 2024: $439.9M vs Q4 2023: $437.6M) | Net income remained nearly flat despite the revenue and EBIT gains. This suggests that factors such as increased non-operating expenses or tax effects absorbed much of the operating improvements, consistent with previous period patterns where upward revenue movement was counterbalanced by other cost drivers. |
Diluted EPS | Marginal improvement (Q4 2024: $1.92 vs Q4 2023: $1.90) | EPS showed only slight improvement, reflecting minimal net income growth and potential incremental share dilution. This scenario is in line with earlier quarters where gains in operating income did not fully translate to net income and EPS due to offsetting factors. |
Investment Advisory Fees | Data: $1,627.2M total; Equity: $987.7M | Increased advisory fees were predominantly driven by robust growth in AUM and a strong performance in the Equity segment. This mirrors previous periods—such as Q3 2024—where rising AUM (up by 14.1% in Q3 2024) and favorable market conditions supported higher fee revenues. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Expense Growth (Adjusted Opex ex. CI) | FY 2024 | 6% to 8% over 2023’s $4.19B | No current guidance | no current guidance |
Net Outflows | FY 2024 | Less than half of FY 2023 levels, excluding VA termination | No current guidance | no current guidance |
Capital Management | FY 2024 | Continue share buybacks ($264M repurchased YTD) | No current guidance | no current guidance |
Adjusted Operating Expenses (ex. CI) | FY 2025 | No formal range, but expected to exceed the 3%-5% range for FY 2024 | 4% to 6% over FY 2024’s $4.46B | no prior guidance |
Real Estate Costs | FY 2025 | No prior guidance | $20M to $30M | no prior guidance |
Market Assumptions | FY 2025 | No prior guidance | Standard equity/fixed income blend | no prior guidance |
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Fee Compression Impact
Q: How will fee compression affect future revenues?
A: Management noted higher fee compression in 2024, about 2% compared to the average 1% to 1.5% per year, due to elevated outflows in higher-fee equity products and inflows into lower-fee vehicles like common trust, ETFs, and institutional separate accounts. They expect fees to continue declining in a manageable way, emphasizing that lower fees are good for clients and enhance their value proposition. -
Expense Management and Cost Savings
Q: Can expenses align better with organic revenue growth?
A: Recognizing fee pressures, management is exploring structural cost-saving measures that may impact 2026 and beyond, with potential upfront investments required. They aim for 2% to 3% annual structural savings to fund new initiatives, acknowledging the need to adjust controllable expense growth. -
Improving Equity Sales
Q: Is improved performance enough to boost equity sales?
A: While strong performance is necessary, it's not sufficient alone. Management is focusing on meeting clients' needs by offering vehicles like ETFs and separately managed accounts, emphasizing tax efficiency and aligning with clients' risk appetites. They acknowledge that active equity markets are facing industry-wide outflows, presenting a headwind. -
Return to Net Inflows
Q: When will net inflows return, especially in target date funds?
A: The company saw improved gross sales in 2024, with $16 billion in net inflows for retirement date funds—their third-best year ever. Management is optimistic about 2025, citing a strong start and a better pipeline than the previous year. However, returning to net inflows depends on factors within and outside their control, including market environment and investor appetite. -
Hybrid Products Potential
Q: What is the potential for hybrid public and private products?
A: Management sees opportunities in offering combined liquid public and private credit products, leveraging capabilities from OHA. They've engaged with alternative asset managers to discuss such offerings, though nothing is advanced yet. With Aspida, they aim to add value across public and private investments in fixed income and alternatives. -
Insurance Partnerships and M&A
Q: How do you view opportunities in insurance and M&A?
A: The company is enthusiastic about the partnership with Aspida and Ares, viewing it as a way to refine their insurance asset management offerings. They are not exclusive to Aspida and are engaging with other insurers. They evaluate strategic investments and M&A opportunities that bring additional capabilities or client access, especially where they can't build organically. -
December Wins and Repeatability
Q: Can you provide color on December wins and their repeatability?
A: In December, the company funded several new mandates across equities, multi-asset, and fixed income, with 10 or 11 wins above $200 million each. These wins helped offset a large sub-advisory redemption, illustrating strong momentum heading into 2025. -
Expense Outlook and HQ Move
Q: What's the impact of the HQ move on expenses?
A: The new headquarters move will result in $20 million to $30 million in expenses, including one-time costs like double rent. While some costs are one-time, there's also an ongoing step-up due to additional capacity. The company is exploring opportunities to reduce expenses in other areas over time.