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Fee Income to Aid State Street (STT) Q2 Earnings, NIR to Hurt
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State Street (STT - Free Report) is scheduled to announce second-quarter 2023 results on Jul 14 before market open. The company’s revenues and earnings are expected to have increased on a year-over-year basis.
In the last reported quarter, STT’s earnings lagged the Zacks Consensus Estimate. Results were largely hurt by a rise in expenses, higher provisions and a fall in fee revenues. Lower asset balances also affected the results. However, an increase in net interest revenues (NIR) and growth in the net interest margin (NIM) aided results to some extent.
State Street has a decent earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering an earnings surprise of 2.31%, on average.
The Zacks Consensus Estimate for State Street’s second-quarter earnings is pegged at $2.10 per share. The consensus estimate has been revised almost 1% upward over the past 30 days. The figure indicates a rise of 8.3% from the year-ago quarter’s reported number. Our estimate for earnings stands at $2.04, implying a 5% rise.
The consensus estimate of $3.13 billion for sales suggests a 6% year-over-year rise. Our estimate for sales is pegged at $3.1 billion, calling for an increase of 5%.
Key Factors & Estimates for Q2
Net Interest Revenues: The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $231.4 billion, which implies a fall of 2.6% from the previous quarter’s reported number. Our estimate for the metric is pegged at $233.2 billion.
Lending activities continued at a slower pace in the second quarter. The Federal Reserve increased rates by 25 basis points in May and then kept the rates unchanged at 5-5.25% during the June FOMC meeting. These factors are expected to have supported State Street’s NIR during the quarter. However, an increase in funding costs weighed on NIR as interest rates continued to remain high. Thus, NIR is likely to have been adversely impacted to some extent.
The Zacks Consensus Estimate for NIR (on a fully taxable-equivalent or FTE basis) of $701.4 million indicates a sequential decline of 8.7%. We project NIR on FTE basis of $690.9 million.
Management projects NII to decrease 5-10% sequentially on non-interest-bearing deposit rotation and interest-bearing deposit betas as monetary tightening and interest rate hikes continue.
Fee Revenues: Lower volatility in foreign exchange (FX) markets is likely to have aided State Street’s FX trading services income. The consensus estimate for the same is pegged at $341.3 million, relatively stable from the prior-quarter level. Our estimate for the metric is pegged at $359.2 million.
The consensus estimate for securities finance revenues of $117.5 million suggests a 7.8% rise from the last quarter.
Also, the Zacks Consensus Estimate for software and processing fees calls for a 22.4% improvement. Management projects software and processing fees to increase substantially based on the number of on-premise renewals and SaaS conversions during the quarter.
The consensus estimate for servicing fees of $1.24 billion indicates a 2.2% sequential rise, while the consensus estimate for management fees of $461.3 million implies almost 1% growth. The company expects servicing fees to be up 1-2% and management fees to be flat to up 1% quarter over quarter. Our estimates for servicing fees and management fees are pegged at $1.23 billion and $457.2 million, respectively.
Overall, the Zacks Consensus Estimate for total fee revenues of $2.43 billion indicates a 4.1% increase from the previous quarter’s reported figure. We project the metric to be the same as the consensus estimate.
Management expects fee revenues to be up 4-4.5% on a sequential basis.
Expenses: Higher information systems and communication expenses, inflationary pressure and the company’s strategic buyouts and investments in franchises are expected to have led to a rise in operating expenses in the second quarter.
Management expects adjusted expenses to be flat on a sequential basis, excluding $181 million of seasonal compensation costs incurred in the first quarter.
We anticipate total non-interest expenses to increase 4.5% to $2.2 billion.
What the Zacks Model Reveals
Per our proven model, the chances of an earnings beat for State Street this time are low. This is because the company does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
Earnings ESP: The Earnings ESP for State Street is -1.19%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #3.
Banks Worth a Look
Here are a couple of major bank stocks that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this time:
The Earnings ESP for Wells Fargo (WFC - Free Report) is +0.16% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2023 results on Jul 14.
Over the past seven days, the Zacks Consensus Estimate for WFC’s quarterly earnings has moved 1.7% lower.
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Fee Income to Aid State Street (STT) Q2 Earnings, NIR to Hurt
State Street (STT - Free Report) is scheduled to announce second-quarter 2023 results on Jul 14 before market open. The company’s revenues and earnings are expected to have increased on a year-over-year basis.
In the last reported quarter, STT’s earnings lagged the Zacks Consensus Estimate. Results were largely hurt by a rise in expenses, higher provisions and a fall in fee revenues. Lower asset balances also affected the results. However, an increase in net interest revenues (NIR) and growth in the net interest margin (NIM) aided results to some extent.
State Street has a decent earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering an earnings surprise of 2.31%, on average.
State Street Corporation Price and EPS Surprise
State Street Corporation price-eps-surprise | State Street Corporation Quote
The Zacks Consensus Estimate for State Street’s second-quarter earnings is pegged at $2.10 per share. The consensus estimate has been revised almost 1% upward over the past 30 days. The figure indicates a rise of 8.3% from the year-ago quarter’s reported number. Our estimate for earnings stands at $2.04, implying a 5% rise.
The consensus estimate of $3.13 billion for sales suggests a 6% year-over-year rise. Our estimate for sales is pegged at $3.1 billion, calling for an increase of 5%.
Key Factors & Estimates for Q2
Net Interest Revenues: The Zacks Consensus Estimate for average interest-earning assets for the to-be-reported quarter is pegged at $231.4 billion, which implies a fall of 2.6% from the previous quarter’s reported number. Our estimate for the metric is pegged at $233.2 billion.
Lending activities continued at a slower pace in the second quarter. The Federal Reserve increased rates by 25 basis points in May and then kept the rates unchanged at 5-5.25% during the June FOMC meeting. These factors are expected to have supported State Street’s NIR during the quarter. However, an increase in funding costs weighed on NIR as interest rates continued to remain high. Thus, NIR is likely to have been adversely impacted to some extent.
The Zacks Consensus Estimate for NIR (on a fully taxable-equivalent or FTE basis) of $701.4 million indicates a sequential decline of 8.7%. We project NIR on FTE basis of $690.9 million.
Management projects NII to decrease 5-10% sequentially on non-interest-bearing deposit rotation and interest-bearing deposit betas as monetary tightening and interest rate hikes continue.
Fee Revenues: Lower volatility in foreign exchange (FX) markets is likely to have aided State Street’s FX trading services income. The consensus estimate for the same is pegged at $341.3 million, relatively stable from the prior-quarter level. Our estimate for the metric is pegged at $359.2 million.
The consensus estimate for securities finance revenues of $117.5 million suggests a 7.8% rise from the last quarter.
Also, the Zacks Consensus Estimate for software and processing fees calls for a 22.4% improvement. Management projects software and processing fees to increase substantially based on the number of on-premise renewals and SaaS conversions during the quarter.
The consensus estimate for servicing fees of $1.24 billion indicates a 2.2% sequential rise, while the consensus estimate for management fees of $461.3 million implies almost 1% growth. The company expects servicing fees to be up 1-2% and management fees to be flat to up 1% quarter over quarter. Our estimates for servicing fees and management fees are pegged at $1.23 billion and $457.2 million, respectively.
Overall, the Zacks Consensus Estimate for total fee revenues of $2.43 billion indicates a 4.1% increase from the previous quarter’s reported figure. We project the metric to be the same as the consensus estimate.
Management expects fee revenues to be up 4-4.5% on a sequential basis.
Expenses: Higher information systems and communication expenses, inflationary pressure and the company’s strategic buyouts and investments in franchises are expected to have led to a rise in operating expenses in the second quarter.
Management expects adjusted expenses to be flat on a sequential basis, excluding $181 million of seasonal compensation costs incurred in the first quarter.
We anticipate total non-interest expenses to increase 4.5% to $2.2 billion.
What the Zacks Model Reveals
Per our proven model, the chances of an earnings beat for State Street this time are low. This is because the company does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
Earnings ESP: The Earnings ESP for State Street is -1.19%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #3.
Banks Worth a Look
Here are a couple of major bank stocks that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this time:
The Earnings ESP for Wells Fargo (WFC - Free Report) is +0.16% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2023 results on Jul 14.
Over the past seven days, the Zacks Consensus Estimate for WFC’s quarterly earnings has moved 1.7% lower.
PNC Financial (PNC - Free Report) is scheduled to release second-quarter 2023 earnings on Jul 18. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.41%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Estimates for PNC’s quarterly earnings have moved 1.2% lower over the past week.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.