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Analyst Blog

Encore Capital Group Inc.‘s (ECPG - Snapshot Report) shares gained 1.3% in the last trading session to close at $43.70 after the company reported a solid second-quarter 2014 earnings results. Though operating earnings of $1.06 per share missed the Zacks Consensus Estimate by 1.9%, it improved a significant 25% year over year, driven by strong growth in collections, in turn supported by geographic expansion and strategic capital investments.

 

 

 

Encore Capital reported net income of 86 cents per share in the second quarter, up from 44 cents in the year-earlier quarter. The figure included the impact of convertible notes non-cash interest and issuance cost amortization of 6 cents per share and acquisition related legal and advisory fees of 14 cents per share.

Operational Update

Total revenue at Encore Capital increased 72% year over year to nearly $269.2 million. Moreover, the top line surpassed the Zacks Consensus Estimate of $265 million. The year-over-year upside was fueled by significantly higher revenues from the receivable portfolio as well as improvement in other revenues and interest income during the quarter.

Gross collections of $409.3 million from the purchasing and recovery business escalated 47% year over year.

Total operating expenses of $190.7 million shot up 51% year over year from $103.9 million. The increased expenses resulted from higher salaries and employee benefits, cost of legal collections, other operating expenses, collection agency commissions and higher general and administrative expenses. Adjusted operating expenses increased to 37.9% from 37.8% in the prior-year quarter.

Meanwhile, Encore Capital’s second-quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved 48% year over year to $255.8 million.

Financial Update

As of Jun 30, 2014, total assets of Encore Capital stood at $3.6 billion, highlighting a rise from $2.7 billion as of Dec 31, 2013.

As of Jun 30, 2014, Encore Capital’s cash and cash equivalents totaled $123.4 million, down from $126.2 million as of Dec 31, 2013.

Investment in Receivable portfolio totaled $1.99 billion at Jun 30, 2014, up from $1.6 billion at 2013-end.

Total debt amounted to $2.7 billion, up nearly 47% from $1.9 billion at 2013-end.

As of Jun 30, 2014, total shareholders’ equity stood at $571.5 million, down from $575.9 million at 2013-end.

Our Take

Encore Capital’s second-quarter earnings missed the Zacks Consensus Estimate but improved over the year-ago numbers on higher collections. Although expenses increased during the quarter, revenues improved at a higher pace, leading to margin expansion. The company’s relentless focus on enhancing core operations and geographic expansion positions it well for long-term growth.

Recently, Encore Capital acquired Atlantic Credit & Finance (ACF), an entity that collects fresh, higher-balance accounts. We view the transaction favorably as it is expected to boost the core business of the company and enhance customer service significantly. The long-term growth rate of the company is pegged at 14.5%.

Performances by Others

Discover Financial Services (DFS - Analyst Report) reported second-quarter 2014 earnings per share (EPS) of $1.35, which exceeded the Zacks Consensus Estimate of $1.30.

Rise in auto finance revenues drove Ally Financial Inc.’s (ALLY - Snapshot Report) second-quarter 2014 adjusted earnings to 42 cents per share. The figure outpaced the Zacks Consensus Estimate of 32 cents.

Sallie Mae (SLM - Analyst Report) second-quarter 2014 core earnings stood at 10 cents per share that outpaced the Zacks Consensus Estimate by a penny.

Zacks Rank

Encore Capital presently carries a Zacks Rank #3 (Hold).
 

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