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Ally Financials' (ALLY) Stock Declines on Q1 Earnings Lag
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Shares of Ally Financial Inc. (ALLY - Free Report) declined nearly 4.2% following the company’s negative earnings surprise of 2% in the first quarter of 2017. Adjusted earnings of 48 cents per share lagged the Zacks Consensus Estimate of 49 cents. Also, the figure declined 7.7% from the prior-year quarter.
Escalated expenses and higher provisions were primarily responsible for the lower-than-expected results. Moreover, capital ratios deteriorated during the quarter. However, higher net revenues supported results to some extent.
Net income available to common shareholders (GAAP basis) was $214 million, down 8.9% from the prior-year quarter.
Revenues & Expenses Increased
Total net revenue for the quarter increased nearly 3.6% year over year to $1.38 billion, owing to a rise in total other revenue as well as net financing revenue. However, the reported figure was a shade below the Zacks Consensus Estimate of $1.39 billion.
Total non-interest expenses increased 9.6% year over year to $778 million. The rise was due to an increase in all expense components.
Credit Quality Deteriorates
Non-performing loans of $798 million were up 14.3% year over year. Moreover, provision for loan losses increased 23.2% year over year to $271 million.
Balance Sheet Strengthens, Capital Ratios Deteriorate
Total finance receivables and loans amounted to $117.85 billion as of Mar 31, 2017, compared with $117.80 billion as of Dec 31, 2016. Further, deposits totaled $84.49 billion, up from $79.02 billion as of Dec 31, 2016.
As of Mar 31, 2017, total capital ratio came in at 12.7%, down from 13.0% at the end of the prior-year quarter. Tier I capital ratio was 11.1%, compared with 11.6% as of Mar 31, 2016.
Share Repurchases
During the quarter, the company repurchased shares worth $169 million.
Our Take
We believe that Ally Financial’s efforts to diversify its revenue sources by enhancing digital offerings and introducing new products will help bottom-line growth. Further, the company’s encouraging capital deployment activities reflect a strong balance sheet position.
However, high debt levels may restrain its ability to procure additional funds for working capital, acquisitions or other purposes. This may also negatively impact the company’s access to liquidity and increase the borrowing costs in the unsecured market.
Ally Financial Inc. Price, Consensus and EPS Surprise
Among others, Capital One Financial Corporation (COF - Free Report) reported first-quarter 2017 adjusted earnings of $1.75 per share, which lagged the Zacks Consensus Estimate of $1.93. Lower-than-expected results were due to a fall in non-interest income, an increase in provisions and rising expenses. However, higher net interest income and easing margin pressure supported the results to some extent.
Sallie Mae (SLM - Free Report) reported first-quarter 2017 core earnings of 21 cents per share, comfortably surpassing the Zacks Consensus Estimate of 15 cents. Better-than-expected results were primarily driven by an increase in net interest income. Continued rise in private education loan originations and lower provisions were the tailwinds. However, these positives were offset by lower non-interest income and higher expenses.
Navient Corporation’s (NAVI - Free Report) first-quarter 2017 adjusted core earnings per share of 36 cents missed the Zacks Consensus Estimate of 43 cents. Also, the figure came in below the year-ago quarter earnings. Results reflected reduced net interest income. However, on a positive note, the company recorded a decline in expenses and lower provision for credit losses.
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Ally Financials' (ALLY) Stock Declines on Q1 Earnings Lag
Shares of Ally Financial Inc. (ALLY - Free Report) declined nearly 4.2% following the company’s negative earnings surprise of 2% in the first quarter of 2017. Adjusted earnings of 48 cents per share lagged the Zacks Consensus Estimate of 49 cents. Also, the figure declined 7.7% from the prior-year quarter.
Escalated expenses and higher provisions were primarily responsible for the lower-than-expected results. Moreover, capital ratios deteriorated during the quarter. However, higher net revenues supported results to some extent.
Net income available to common shareholders (GAAP basis) was $214 million, down 8.9% from the prior-year quarter.
Revenues & Expenses Increased
Total net revenue for the quarter increased nearly 3.6% year over year to $1.38 billion, owing to a rise in total other revenue as well as net financing revenue. However, the reported figure was a shade below the Zacks Consensus Estimate of $1.39 billion.
Total non-interest expenses increased 9.6% year over year to $778 million. The rise was due to an increase in all expense components.
Credit Quality Deteriorates
Non-performing loans of $798 million were up 14.3% year over year. Moreover, provision for loan losses increased 23.2% year over year to $271 million.
Balance Sheet Strengthens, Capital Ratios Deteriorate
Total finance receivables and loans amounted to $117.85 billion as of Mar 31, 2017, compared with $117.80 billion as of Dec 31, 2016. Further, deposits totaled $84.49 billion, up from $79.02 billion as of Dec 31, 2016.
As of Mar 31, 2017, total capital ratio came in at 12.7%, down from 13.0% at the end of the prior-year quarter. Tier I capital ratio was 11.1%, compared with 11.6% as of Mar 31, 2016.
Share Repurchases
During the quarter, the company repurchased shares worth $169 million.
Our Take
We believe that Ally Financial’s efforts to diversify its revenue sources by enhancing digital offerings and introducing new products will help bottom-line growth. Further, the company’s encouraging capital deployment activities reflect a strong balance sheet position.
However, high debt levels may restrain its ability to procure additional funds for working capital, acquisitions or other purposes. This may also negatively impact the company’s access to liquidity and increase the borrowing costs in the unsecured market.
Ally Financial Inc. Price, Consensus and EPS Surprise
Ally Financial Inc. Price, Consensus and EPS Surprise | Ally Financial Inc. Quote
Currently, Ally Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Finance Companies
Among others, Capital One Financial Corporation (COF - Free Report) reported first-quarter 2017 adjusted earnings of $1.75 per share, which lagged the Zacks Consensus Estimate of $1.93. Lower-than-expected results were due to a fall in non-interest income, an increase in provisions and rising expenses. However, higher net interest income and easing margin pressure supported the results to some extent.
Sallie Mae (SLM - Free Report) reported first-quarter 2017 core earnings of 21 cents per share, comfortably surpassing the Zacks Consensus Estimate of 15 cents. Better-than-expected results were primarily driven by an increase in net interest income. Continued rise in private education loan originations and lower provisions were the tailwinds. However, these positives were offset by lower non-interest income and higher expenses.
Navient Corporation’s (NAVI - Free Report) first-quarter 2017 adjusted core earnings per share of 36 cents missed the Zacks Consensus Estimate of 43 cents. Also, the figure came in below the year-ago quarter earnings. Results reflected reduced net interest income. However, on a positive note, the company recorded a decline in expenses and lower provision for credit losses.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trade>>