Regional Management Corp. (RM) expects its fourth-quarter 2013 earnings will be lowered by 3 cents per share due to franchise taxes. Concurrently, it also announced the launch of secondary offering of 2.04 million common shares.
The 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 Regional Management and affiliates of Palladium Equity Partners and Parallel Investment Partners.
Additionally, entities affiliated with Richard A. Godley, a director, existing stockholder and founder of Regional Management, and C. Glynn Quattlebaum, President and Chief Operating Officer, an existing stockholder and founder of the company, are also offering the shares. The underwriters are given an option for 30 days to purchase up to an additional 0.3 million shares.
Regional Management stated it will not sell any shares or receive any proceeds from the offering. As a result this issuance will not have any effect on the bottom line of the company.
With respect to internal control implementation work, Regional Management noted that non-income based franchise taxes in certain states were not appropriately expensed when incurred. Thus, Regional Management expects to record $0.6 million in its operating expense in connection with the franchise taxes that in turn will lower its fourth-quarter earnings by 3 cents per share.
About $0.3 million of the operating expense pertains to last two years, while the remainder relates to the current year. The Zacks Consensus estimate for the fourth quarter, currently pegged at 71 cents, is expected to see a downturn as analysts adjust their estimates.
Nonetheless, a diversified product suite, branch expansions and convenience check campaigns continue to fuel finance receivables growth. Total finance receivables were $528.9 million, up 3.3% from total finance receivables of $512.1 million as of Sep 30, 2013.
Regional Management, after a dry spell of four quarters, finally managed to deliver positive surprise in the last reported quarter. We wait to see if the company, riding on its strengths, can deliver another quarter of positive surprise.
Regional Management presently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the finance sector include Capital One Financial Corp. (COF), Discover Financial Services (DFS) and Global Payments Inc. (GPN). All these stocks carry a Zacks Rank #2 (Buy).
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