Shares of Ally Financial Inc. ALLY gained nearly 7.3% following the company’s release of a positive earnings surprise of 14.9% in the fourth quarter of 2016. Adjusted earnings of 54 cents per share surpassed the Zacks Consensus Estimate of 47 cents. Also, the figure improved 3.8% from the prior-year quarter.
Higher net revenues, supported by a strong balance sheet, primarily helped the company to report better-than-expected results. However, escalated expenses and higher provisions for loan losses were the headwinds.
Net income available to common shareholders (GAAP basis) for the quarter came in at $248 million, against a loss of $953 million recorded in the prior-year quarter.
The company reported full-year 2016 adjusted earnings of $2.16, surpassing the Zacks Consensus Estimate of $2.10. The figure improved 8% year over year. GAAP net income for 2016 came in at $1.04 billion, against a loss of $1.28 billion a year ago.
Higher Revenues Partially Offset Expense Pressure
Total net revenue for the quarter climbed nearly 2.2% year over year to $1.37 billion owing to a rise in total other revenue. The reported figure was in line with the Zacks Consensus Estimate.
For 2016, total net revenue came in at $5.44 billion, up 11.8% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $5.38 billion.
Controllable expenses came in at $499 million, up nearly 7.3% from the prior-year quarter. Further, other non-interest expenses increased 9.9% year over year to $222 million.
Credit Quality Deteriorates
Non-performing loans of $819 million were up 20.4% year over year. Moreover, provision for loan losses increased 11.3% year over year to $267 million.
Balance Sheet Strengthens, Mixed Capital Ratios
Total finance receivables and loans amounted to $117.80 billion as of Dec 31, 2016, compared with $113.83 billion as of Sep 30, 2016. Further, deposits totaled $79.02 billion, up from $75.74 billion as of Sep 30, 2016.
As of Dec 31, 2016, total capital ratio came in at 12.6%, up from 12.5% at the end of the prior-year quarter. Tier I capital ratio was 10.9%, compared with 11.1% as of Dec 31, 2015.
Capital Deployment
In 2016, the company paid more than $400 million to shareholders in the form of share repurchases and dividend payments.
Our Take
We believe that Ally Financial’s high debt levels may restrain its ability to procure additional funds for working capital, acquisitions or other purposes. This may also negatively impact the company’s access to liquidity and increase the borrowing costs in the unsecured market. Also, stringent regulations are expected to hamper flexibility and increase compliance costs.
However, the company’s acquisition of TradeKing in Jun 2016 is likely to assist in improving product offerings and digitization of financial operations, which will further help in diversifying its revenue base.
Ally Financial Inc. Price, Consensus and EPS Surprise
Ally Financial Inc. Price, Consensus and EPS Surprise | Ally Financial Inc. Quote
Currently, Ally Financial carries a Zacks Rank #5 (Strong Sell).
Performance of Other Finance Companies
Among others, Capital One Financial Corporation COF reported fourth-quarter 2016 earnings of $1.45 per share, which lagged the Zacks Consensus Estimate of $1.60. Also, it compared unfavorably with the year-ago quarter’s earnings of $1.58. Lower-than-expected results were due to a fall in non-interest income, an increase in provisions and rising expenses. It currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sallie Mae’s SLM fourth-quarter 2016 core earnings of 15 cents per share were in line with the Zacks Consensus Estimate. Compared to the prior-year quarter, the bottom line declined 25%. Results reflected increased net interest income. Continued rise in private education loan originations was a tailwind.
Navient Corporation’s NAVI fourth-quarter 2016 core earnings per share of 43 cents missed the Zacks Consensus Estimate by a penny. Also, the figure came below the year-ago quarter’s tally. Results reflect reduced net interest income and higher expenses.
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