Encore Capital Group, Inc. (ECPG) reported fourth-quarter 2014 adjusted earnings of $1.12 per share which missed the Zacks Consensus Estimate by 1.8%. Results, however, improved year over year by 10.9%. The upside was driven by a record growth in collections, deployments and revenues, which in turn were supported by the company’s geographic expansion.
Encore Capital reported net income of $1.04 per share in the fourth quarter, up from 87 cents in the year-earlier quarter. The figure included the impact of convertible notes non-cash interest and issuance cost amortization of 6 cents per share and acquisition and integration related expenses of 2 cents per share.
Operational Update
Total revenue at Encore Capital increased 17% year over year to a record $277.0 million. Moreover, the top line surpassed the Zacks Consensus Estimate of $266 million. The year-over-year upside was aided by higher revenues from the receivable portfolio as well as improvement in other revenues and interest income during the quarter.
Gross collections of $394 million from the purchasing and recovery business escalated 12% year over year.
Total operating expenses of $188 million rose 12% year over year from $168 million. The increase in expenses resulted from higher salaries and employee benefits, cost of legal collections, other operating expenses, higher general and administrative expenses and depreciation and amortization expenses. Adjusted operating expenses per dollar collected for the portfolio purchasing and recovery business decreased to 39.8% from 42.1% in the prior-year quarter.
Encore Capital’s fourth-quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved 17% year over year to $241 million.
Full-Year Highlights
Encore Capital reported adjusted full year EPS of $4.34 per share missing the Zacks Consensus Estimate by 3.1%. Results, however, improved 15.1% on a year over year basis.
Total revenues came in at $1.07 billion, up 39% year over year. Results also surpassed the Zacks Consensus Estimate by 2.9%.
Financial Update
As of Dec 31, 2014, total assets of Encore Capital amounted to $3.7 billion highlighting a rise from $2.7 billion as of Dec 31, 2013.
As of Dec 31, 2014, Encore Capital’s cash and cash equivalents totaled $124.2 million, down from $126.2 million as of Dec 31, 2013.
Investments
in Receivable portfolio totaled $2.1 billion at Dec 31, 2014, up from $1.6 billion at 2013-end.
Total debt amounted to $2.8 billion, up nearly 49.9% from $1.9 billion at 2013-end.
As of Dec 31, 2014, total shareholders’ equity stood at $626.9 million, up from $575.9 million at 2013-end.
As of Dec 31, 2014, the net cash provided by operating activities was $111.5 million compared to $74.8 million at 2013 end.
Our Take
Encore Capital witnessed a record revenue in 2014 on the strength of higher revenue from receivable portfolios along with rise in other revenues and net interest income. This combined with comparatively low magnitude of expense increase resulted in bottom-line improvement. Moreover, the company reported record 2014 adjusted economic EPS of $4.52 per share.
Encore Capital's relentless focus on enhancing core operations along with geographic expansion and worldwide deployment strategy positions it well for long-term growth.
Currently, Encore Capital carries a Zacks Rank #4 (Sell).
Performance of Other Stocks in the Same Sector
Sallie Mae’s (SLM) core earnings of 3 cents per share for fourth-quarter 2014 missed the Zacks Consensus Estimate of 5 cents. Also, results compared unfavorably with core earnings of 14 cents reported in the year-ago quarter.
Navient Corporation’s (NAVI) fourth-quarter 2014 core earnings came in at 53 cents per share, in line with the Zacks Consensus Estimate. The figure, however, compared unfavorably with core earnings of 62 cents per share reported in the year-earlier quarter.
Discover Financial Services (DFS) failed to keep the earnings streak alive with its fourth-quarter 2014 financial results. Earnings per share of $1.19 missed the Zacks Consensus Estimate of $1.30 and decreased 3% from the prior-year quarter.
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