Shares of Ocwen Financial Corp. OCN plunged nearly 10% after the company released second-quarter 2015 results on Jul 30, after the market closed. Concerns over continued decline in servicing and sub-servicing fees as well as higher operating expenses probably triggered the fall.
Earnings of 8 cents per share lagged the Zacks Consensus Estimate of 18 cents by 55.6%. Further, the figure came drastically below the year-ago quarter earnings of 48 cents. Results for the reported quarter included $30 million of net gains from sales of performing and non-performing agency mortgage servicing rights, $15 million of strategic advisor expenses and $6 million of monitor costs.
Net income attributable to Ocwen was $9.7 million, down substantially from $66.0 million in the prior-year quarter.
Performance in Detail
Total revenue declined 16.2% year over year to $463.3 million. Lower servicing and sub-servicing fees, and other revenues were partially offset by a rise in net gain on loans held for sale. However, the figure beat the Zacks Consensus Estimate of $453.0 million.
Operating expenses increased 2% from the year ago quarter to $352.3 million. The rise largely reflected higher servicing and origination costs, professional services fees as well as technology and communications expenses. However, these were slightly offset by a reduction in compensation and benefits, amortization of mortgage servicing rights as well as other operating expenses.
Net other expenses declined 24.5% year over year to $98.5 million, driven by lower interest expense.
Income from operations came in at $111.0 million, down 46.5% from the prior-year quarter.
As of Jun 30, 2015, Ocwen recorded a cash balance of $320.1 million, up from $129.5 million as of Dec 31, 2014. Total assets were $8.0 billion, down from $8.2 billion as of Dec 31, 2014.
Our Take
This year, Ocwen expects to generate profits by extending its advance receivable facility, meeting regulatory requirements, executing its plan to reduce GSE servicing exposure and complying with debt covenants. However, the company’s troubled profitability, after a prolonged period of regulatory issues, may take considerable time to reach its previous level. Further, continued strain on top line keeps us apprehensive.
Currently, Ocwen carries a Zacks Rank #2 (Buy).
Other mortgage investment firms like LendingTree, Inc. TREE, Freddie Mac FMCC and Ellington Financial LLC EFC are scheduled to report results on Aug 3, Aug 4 and Aug 6, respectively.
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