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Synchrony Financial's (SYF) Q3 Earnings Surpass Expectations

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Synchrony Financial’s (SYF - Free Report) third-quarter 2017 earnings per share of 70 cents surpassed the Zacks Consensus Estimate by 9.4%. However, the bottom line declined 4.1 % from the year-ago quarter due to higher expenses.

Net earnings totaled $555 million, down 8.1% year over year.

Results in Detail

The company’s net revenues, represented as net interest income, increased 11% to $3.9 billion, primarily due to strong loan receivables growth. Net interest income, after retailer share arrangements, increased 13%. The company’s third-quarter revenues also surpassed the Zacks Consensus Estimate of $3.8 billion.

However, other income was down 9.5% to $76 million, primarily due to higher loyalty program expenses, partially offset by higher interchange revenues.

Loan receivables grew 9% year over year to $77 billion.

Deposits were $54 billion, up 9% from the last-year quarter.

Purchase volume increased 4% from the third quarter of 2016

Provision for loan losses increased 33% year over year to $1.31 million due to credit normalization and loan receivables growth.

Other expenses increased 11% to $958 million, primarily due to business growth.

Sales Platforms Update

Retail Card

Interest and fees on loans grew 11% year over year, driven primarily by period-end loan receivables growth of 9%.

Purchase volume growth was 4% and average active account rose 3%.

Loan receivables growth was broad-based across partner programs.

Payment Solutions

Interest and fees on loans rose 11% year over year on the back of period-end loan receivables growth of 9%.

Purchase volume growth was 6%, adjusted to exclude the impact from the hhgregg bankruptcy, and 9% rise in average active account. 

Loan receivables growth was led by home furnishings and automotive.

CareCredit

Interest and fees on loans increased 9% year over year, driven by period-end loan receivables growth of 10%.

Purchase volume growth was 9% and average active account growth was 9%.

Loan receivables growth was led by dental and veterinary.

Synchrony Financial Price, Consensus and EPS Surprise

Financial Position

Total assets as on Sep 30, 2017 was $92.5 billion, up 6.2% year over year.

Total borrowings as on Sep 30, 2017, was $19.9 billion, down 1.3% year over year,

The company’s balance sheet remained strong during the quarter, with total liquidity of $22 billion, or 24% of total assets.

Return on assets was 2.4% and return on equity was 15.3%

Efficiency ratio was 30.4% compared with 30.6% in the third quarter of 2016, driven by strong positive operating leverage.

Share Repurchase and Dividend Update

In the third quarter, the company paid quarterly common stock dividend of 15 cents per share and repurchased $390 million of Synchrony Financial common stock

Business Update

During the third quarter, the company launched new programs with At Home and zulily. It also launched new 2% Cash Back value proposition at PayPal and new CareCredit Dual Card.

Zacks Rank

Synchrony Financial presently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other players in the Finance sector that have reported their third-quarter earnings so far, Brown & Brown, Inc. (BRO - Free Report) , RLI Corp. (RLI - Free Report) and The Progressive Corporation (PGR - Free Report) beat their respective Zacks Consensus Estimate.

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