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Goldman (GS) Q4 Earnings Beat Estimates, Expenses Flare Up
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Reflecting the highest net revenues since 2010, Goldman Sachs’ (GS - Free Report) fourth-quarter 2018 results recorded a positive earnings surprise of 23.8%. The company reported earnings per share of $6.04, comfortably beating the Zacks Consensus Estimate of $4.88. The bottom line also compares favorably with adjusted earnings of $5.68 per share recorded in the year-earlier quarter.
The investment bank turned triumphant with strong equities and financial advisory revenues. In addition, Investment Management business was strong. However, lower Fixed Income, Currency and Commodities Client Execution (FICC) revenues and elevated expenses were undermining factors. Further, lower underwriting revenues was a major drag.
For full-year 2018, net income per share of $25.27 came in higher than the year-ago earnings of $9.01. Earnings also surpassed the Zacks Consensus Estimate of $24.73.
Revenues Decline Y/Y, Expenses Escalate
For full-year 2018, the company’s reported revenues of $36.6 billion were up 12% year over year. Moreover, revenues managed to beat the Zacks Consensus Estimate of $36 billion as well.
Goldman’s net revenues were down 1% year over year to $8.1 billion in the quarter under review. However, the revenue figure handily outpaced the Zacks Consensus Estimate of $7.9 billion.
Quarterly revenues, as per business segments, are as follows:
The Investment Banking division generated revenues of around $2 billion, down 5% year over year. Results highlight lower underwriting revenues (down 38%), aided by reduced equity and debt underwriting revenues, partly offset by increased financial advisory revenues (up 56%). Notably, industry-wide completed mergers and acquisitions volumes went up.
The Investment Management division recorded revenues of $1.7 billion, up 2% year over year. The uptick was mainly driven by elevated transaction and incentive fees.
The Institutional Client Services division recorded revenues of $2.4 billion, up 2% year over year. The rise indicates increase in equities revenues, backed by higher equities client execution (up 80%) and commissions and fees (up 8%), partly offset by lower securities service revenues (down 2%).
Notably, lower net revenues in Fixed Income, Currency and Commodities Client Execution (down 18% year over year), impacted by reduced revenues from interest rate and credit products, were recorded. Revenues remained stable for mortgages, commodities and currencies.
The Investing and Lending division’s revenues of $1.9 billion in the quarter under review came in 2% lower year over year. The downside stemmed from the decline in revenues from investments in equities, partially muted by higher revenues from debt securities & loans.
Total operating expenses flared up 9% year over year to $5.2 billion. Expenses shot up mainly due to rise in non-compensation expenses, partly muted by lower compensation expenses (down 11%).
Notably, higher net provisions for litigation and regulatory proceedings were recorded.
Provision for credit losses was $222 million in the quarter, down 23.4% year over year.
Strong Capital Position
Goldman displayed a robust capital position in the reported quarter. As of Dec 31, 2018, the company’s Common Equity Tier 1 ratio was 13.1% under the Basel III Advanced Approach, highlighting the valid transitional provisions. The figure was up from 10.7% recorded in the prior-year quarter.
The company’s supplementary leverage ratio, on a fully phased-in basis, was 6.2% at the end of the Oct-Dec quarter, up from 5.8% witnessed in the previous-year quarter.
Return on average common shareholders’ equity, on an annualized basis, was 12.1% in the reported quarter, and13.3% for 2018.
Capital Deployment Update
During 2018, Goldman repurchased 13.9 million shares of its common stock at an average price per share of $236.22 and a total cost of $3.29 billion. Notably, during fourth-quarter 2018, the company repurchased 5.6 million shares of its common stock at an average price per share of $222.30 and a total cost of $1.25 billion.
Conclusion
Results of Goldman highlight an impressive quarter. Remarkable improvement in financial advisory business and equities drove revenues. The company’s well-diversified business, apart from its core investment banking operations, continues to ensure earnings stability.
Its focus to capitalize on new growth opportunities through several strategic investments, including the digital consumer lending platform, will likely bolster overall business growth. Nonetheless, costs rising from brokerage and market development remain near- to medium-term headwinds. Further, muted fixed income trading activities are a concern.
The Goldman Sachs Group, Inc. Price, Consensus and EPS Surprise
Dismal fixed income trading and underwriting business performance affected JPMorgan’s (JPM - Free Report) fourth-quarter 2018 earnings of $1.98 per share, which lagged the Zacks Consensus Estimate of $2.20. However, the figure surged 85% from the prior-year quarter.
Citigroup (C - Free Report) kick-started the earnings season and delivered a positive earnings surprise of 3.9% in fourth-quarter 2018, backed by expense control and lower cost of credit. Adjusted net income per share of $1.61 for the quarter handily outpaced the Zacks Consensus Estimate of $1.55. Also, adjusted earnings climbed 26% year over year.
Backed by lower expenses, Wells Fargo (WFC - Free Report) delivered a positive earnings surprise of 3.4% in fourth-quarter 2018. Earnings of $1.21 per share surpassed the Zacks Consensus Estimate of $1.17. The bottom-line figure also compared favorably with $1.16 recorded in the prior-year quarter.
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Goldman (GS) Q4 Earnings Beat Estimates, Expenses Flare Up
Reflecting the highest net revenues since 2010, Goldman Sachs’ (GS - Free Report) fourth-quarter 2018 results recorded a positive earnings surprise of 23.8%. The company reported earnings per share of $6.04, comfortably beating the Zacks Consensus Estimate of $4.88. The bottom line also compares favorably with adjusted earnings of $5.68 per share recorded in the year-earlier quarter.
The investment bank turned triumphant with strong equities and financial advisory revenues. In addition, Investment Management business was strong. However, lower Fixed Income, Currency and Commodities Client Execution (FICC) revenues and elevated expenses were undermining factors. Further, lower underwriting revenues was a major drag.
For full-year 2018, net income per share of $25.27 came in higher than the year-ago earnings of $9.01. Earnings also surpassed the Zacks Consensus Estimate of $24.73.
Revenues Decline Y/Y, Expenses Escalate
For full-year 2018, the company’s reported revenues of $36.6 billion were up 12% year over year. Moreover, revenues managed to beat the Zacks Consensus Estimate of $36 billion as well.
Goldman’s net revenues were down 1% year over year to $8.1 billion in the quarter under review. However, the revenue figure handily outpaced the Zacks Consensus Estimate of $7.9 billion.
Quarterly revenues, as per business segments, are as follows:
The Investment Banking division generated revenues of around $2 billion, down 5% year over year. Results highlight lower underwriting revenues (down 38%), aided by reduced equity and debt underwriting revenues, partly offset by increased financial advisory revenues (up 56%). Notably, industry-wide completed mergers and acquisitions volumes went up.
The Investment Management division recorded revenues of $1.7 billion, up 2% year over year. The uptick was mainly driven by elevated transaction and incentive fees.
The Institutional Client Services division recorded revenues of $2.4 billion, up 2% year over year. The rise indicates increase in equities revenues, backed by higher equities client execution (up 80%) and commissions and fees (up 8%), partly offset by lower securities service revenues (down 2%).
Notably, lower net revenues in Fixed Income, Currency and Commodities Client Execution (down 18% year over year), impacted by reduced revenues from interest rate and credit products, were recorded. Revenues remained stable for mortgages, commodities and currencies.
The Investing and Lending division’s revenues of $1.9 billion in the quarter under review came in 2% lower year over year. The downside stemmed from the decline in revenues from investments in equities, partially muted by higher revenues from debt securities & loans.
Total operating expenses flared up 9% year over year to $5.2 billion. Expenses shot up mainly due to rise in non-compensation expenses, partly muted by lower compensation expenses (down 11%).
Notably, higher net provisions for litigation and regulatory proceedings were recorded.
Provision for credit losses was $222 million in the quarter, down 23.4% year over year.
Strong Capital Position
Goldman displayed a robust capital position in the reported quarter. As of Dec 31, 2018, the company’s Common Equity Tier 1 ratio was 13.1% under the Basel III Advanced Approach, highlighting the valid transitional provisions. The figure was up from 10.7% recorded in the prior-year quarter.
The company’s supplementary leverage ratio, on a fully phased-in basis, was 6.2% at the end of the Oct-Dec quarter, up from 5.8% witnessed in the previous-year quarter.
Return on average common shareholders’ equity, on an annualized basis, was 12.1% in the reported quarter, and13.3% for 2018.
Capital Deployment Update
During 2018, Goldman repurchased 13.9 million shares of its common stock at an average price per share of $236.22 and a total cost of $3.29 billion. Notably, during fourth-quarter 2018, the company repurchased 5.6 million shares of its common stock at an average price per share of $222.30 and a total cost of $1.25 billion.
Conclusion
Results of Goldman highlight an impressive quarter. Remarkable improvement in financial advisory business and equities drove revenues. The company’s well-diversified business, apart from its core investment banking operations, continues to ensure earnings stability.
Its focus to capitalize on new growth opportunities through several strategic investments, including the digital consumer lending platform, will likely bolster overall business growth. Nonetheless, costs rising from brokerage and market development remain near- to medium-term headwinds. Further, muted fixed income trading activities are a concern.
The Goldman Sachs Group, Inc. Price, Consensus and EPS Surprise
The Goldman Sachs Group, Inc. Price, Consensus and EPS Surprise | The Goldman Sachs Group, Inc. Quote
Currently, Goldman carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Dismal fixed income trading and underwriting business performance affected JPMorgan’s (JPM - Free Report) fourth-quarter 2018 earnings of $1.98 per share, which lagged the Zacks Consensus Estimate of $2.20. However, the figure surged 85% from the prior-year quarter.
Citigroup (C - Free Report) kick-started the earnings season and delivered a positive earnings surprise of 3.9% in fourth-quarter 2018, backed by expense control and lower cost of credit. Adjusted net income per share of $1.61 for the quarter handily outpaced the Zacks Consensus Estimate of $1.55. Also, adjusted earnings climbed 26% year over year.
Backed by lower expenses, Wells Fargo (WFC - Free Report) delivered a positive earnings surprise of 3.4% in fourth-quarter 2018. Earnings of $1.21 per share surpassed the Zacks Consensus Estimate of $1.17. The bottom-line figure also compared favorably with $1.16 recorded in the prior-year quarter.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>