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Synchrony Financial (SYF) Q3 Earnings Beat, Improve Y/Y

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Synchrony Financial’s (SYF - Free Report) third-quarter 2018 earnings per share of 91 cents surpassed the Zacks Consensus Estimate of 80 cents by 13.7%. The bottom line also improved 30% year over year, primarily backed by better strong loan receivables growth and purchase volume. 
 
Results in Detail
 
The company’s net interest income increased 9% to $4.2 billion in the second quarter, primarily owing to strong loan receivables growth. In the quarter under review, the company bought the U.S. PayPal Credit financing program, acquiring $7.6 billion in receivables.
 
However, other income was down by 13% year over year due to loyalty programs. 
 
Loan receivables rose 14% year over year to $88 billion.
 
Synchrony Financial Price, Consensus and EPS Surprise
 
Deposits were $62 billion, up 14% from the year-ago quarter’s level.
 
Purchase volume expanded 11% from the third quarter of 2017 to $36 billion.
 
Provision for loan loss increased 11% year over year to $1.5 billion due to the PayPal Credit reserve build, which is again partially offset by moderating credit trends.
 
Total other expenses increased 10% to $1.1 billion, primarily due to the PayPal Credit program purchase and other growth-related expenses.
 
The company renewed and added collaborations, expanded its digital capabilities as well as enhanced its CareCredit network in the reported quarter. 
 
Sales Platforms Update
 
Retail Card
 
In the third quarter of 2018, period-end loan receivables grew 16% to $60.5 billion due to the PayPal Credit program buyout. 
 
Interest and fees on loans grew 12% year over year to $3.4 billion.  Purchase volume was up 11% to $29.2 billion while average active accounts grew 10%, all mainly fueled by the PayPal Credit program acquisition.
 
Payment Solutions
 
Interest and fees on loans rose 8% year over year to $601 millions on the back of loan receivables growth. Loan receivables grew 9% to $17.6 billion, led by home furnishings as well as power equipment. 
 
Purchase volume expanded 10% to $4.6 billion while average active account rose 5%. 
 
CareCredit
 
Interest and fees on loans increased 6% year over year to $551 million, attributable to period-end loan receivables growth. Loan receivables growth of 8% to $9.3 billion, was attributable to dental and veterinary.
 
While purchase volume registered 9% growth to $2.5 billion, average active account reported a 5% rise.
 
Financial Position
 
Total assets as of Sep 30, 2018 were $104.5 billion, up 12.9% year over year.
 
Total borrowings as of Sep 30, 2018 were $23.7 billion, up 19.1% year over year.
 
The company’s balance sheet remained strong during the reported quarter with total liquidity of $23 billion or 22% of total assets.
 
Return on assets was 2.7% while return on equity was 18.5%.
 
Efficiency ratio was 31% compared with 30.4% in third-quarter 2017.
 
Share Repurchase and Dividend Update
 
In the quarter under review, the company paid a quarterly common stock dividend of 21 cents per share and bought back $966 million of Synchrony Financial common stock. 
 
Zacks Rank
 
Synchrony Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 
Other Players’ Releases From Finance Sector
 
Among other players from the finance sector having reported third-quarter earnings so far, the bottom line of The Progressive Corp. (PGR - Free Report) and MGIC Investment Corp. (MTG - Free Report) outpaced the respective Zacks Consensus Estimate while RLI Corp.’s metric (RLI - Free Report) missed. 

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