Regional Management Corp. (RM) guided its third-quarter 2013 results based on its quarter-to-date performance and announcement of secondary offering of 2.9 million common shares.
The diversified specialty consumer finance company expects to deliver earnings of 58–61 cents per share on revenue of $42.5–$45.0 million for the third quarter of 2013. Shares outstanding are estimated to be 12.9 million. The Zacks Consensus Estimate for the quarter is currently pegged at 63 cents, a couple of pennies above the company guidance. The estimate also translates to a year-over-year improvement of 15%. Regional Management could not deliver positive earnings surprises in the last four quarters. We wait to see if Regional Management, riding on its strengths, manages to deliver a positive surprise in the upcoming quarter.
The expectations compared favorably with 55 cents per share earned on $35.5 million in revenue generated in the year-ago quarter. Also, total finance receivables are anticipated to be between $510.0 and $516.0 million at third-quarter end, compared with $396.9 million as of the end of the third quarter of 2012.
The expected year-over-year improvement reflects successful back-to-school direct mail campaigns, higher demand for credit products due to diversified product offering, and branch expansion strategy, among others. Moreover, the company mailed above 1 million convenience checks between last week of June and first week of August, enabling the receivers to take loans. Regional Management noted that total yield in the first two months of the ongoing quarter increased 40 basis points from the second quarter of 2012. The improvement stemmed from weighted average coupon for loans originated from campaigns, and marked the fourth consecutive month of yield increase.
Additionally, total finance receivables improved 10.2% from second-quarter end to $507.3 million as on Aug 31, 2013.
On the back of solid growth in finance receivables, Regional Management expects to set aside more-than-estimated provision for credit losses and increased interest expense.
With respect to the secondary offering, the 2.9 million common shares will be offered by Palladium Equity Partners III, L.P. and Parallel 2005 Equity Fund, LP. Both these entities are current stakeholders of the company and affiliates of Palladium Equity Partners and Parallel Investment Partners. Regional Management stated it will not sell any shares or receive any proceeds from the offering. Moreover, total number of shares will remain unchanged.
There was no earnings momentum over the last 30 days. With Regional Management expecting better numbers in the third quarter, we expect analysts to pull their estimate upward. This in turn will exert upward directional pressure on the Zacks Rank. Regional Management presently carries a Zacks Rank #3 (Hold). Consumer loans provider Encore Capital Group, Inc. (ECPG), SLM Corporation (SLM), and Tree.Com, Inc. (TREE), among others, carry a favorable Zacks Rank #2 (Buy) and are worth considering.
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