CIT Group Earnings Lag on Settlement Charges - Analyst Blog


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CIT Group Inc. 's ( CIT ) fourth-quarter 2013 earnings per share of 65 cents lagged the Zacks Consensus Estimate of 86 cents. This was also below the year-ago figure of $1.03 per share. Notably, earnings in the reported quarter included $45 million of Tyco tax agreement settlement charge.

Lower-than-expected results were due to decline in non-interest income and higher-than-expected operating expenses, partly offset by net interest revenue growth. However, credit quality was a mixed bag, while capital ratios remained strong.

CIT Group's net income came in at $130 million in the said quarter, down 37.2% year over year.

For full-year 2013, net income was $676 million or $3.35 per share, compared with a net loss of $592 million or $2.95 per share in 2012, which included debt refinancing charges related to redemption of high-cost debt. However, earnings per share missed the Zacks Consensus Estimate of $3.54.

Performance in Detail

On a non-GAAP basis, total net revenue was $465.2 million, down 3.8% from the prior-year quarter. This was due to lower other income, partially offset by growth in net finance revenue. Further, net revenue missed the Zacks Consensus Estimate of $627.0 million.

For 2013, total net revenue (on non-GAAP basis) increased significantly from $576.2 million in the prior year to $1,823.7 million. However, it lagged the Zacks Consensus Estimate of $2,464.0 million.

Net interest revenue was $51.3 million, up from negative net interest revenue of $9.6 million in the year-ago quarter. The improvement came mainly on the back of a 21.8% fall in interest expense.

Total non-interest income was $559.8 million, down 10.2% year over year. The decline was due to fall in rental income on operating leases and other income.

Net finance revenue as a percentage of average earning assets (excluding the impact of debt prepayment) decreased 88 basis points (bps) to 4.00%. The decline was primarily owing to the sale of higher-yielding Vendor Finance assets and a fall in operating lease margin.

Operating expenses (excluding restructuring costs) were $269.0 million, up 22.2% from the prior-year quarter.

Credit Quality

CIT Group's credit quality was a mixed bag in the reported quarter. Non-accrual loans fell 27.4% year over year to $241 million. Further, net charge-offs were $15 million, down from $17 million in the prior-year quarter. However, provision for credit losses was $14 million in the quarter, up from $0.1 million in the year-ago quarter.

Balance Sheet and Capital Ratios

As of Dec 31, 2013, cash and short-term investment securities were $7.6 billion, comprising $6.1 billion of cash and $1.5 billion of short-term investments. Moreover, CIT Group had approximately $1.9 billion of unused and committed liquidity under a $2 billion revolving credit facility as of Dec 31, 2013.

Capital ratios were stable as of Dec 31, 2013, with Tier 1 capital ratio of 16.7% and total capital ratio of 17.4%, both of which increased from the prior-quarter level. Book value per share was $44.78 as of Dec 31, 2013, up from $41.49 as of Dec 31, 2012.

Share Repurchase Update

During the said quarter, CIT Group repurchased more than 2.9 million shares for $140.9 million. Hence, for 2013, the company brought back over 4 million shares for approximately $193 million.

Further, earlier this month, CIT Group announced the increase of its share repurchase authorization. The company authorized buyback of up to $307 million worth of shares through the end of this year, which includes the amount remaining from the 2013 authorization.

Our Take

We expect CIT Group's liability restructuring initiatives and access to low-cost debts to support growth. Moreover, the company's steady capital deployment activities will boost shareholders' value. However, sluggish growth in the industries where CIT Group provides finance, stringent regulations and a weak economic recovery could dent the company's growth prospects.

Currently, CIT Group carries a Zacks Rank #3 (Hold).

Among other miscellaneous services companies, FleetCor Technologies, Inc. ( FLT ) is expected to announce results on Feb 5, while Moneygram International Inc. ( MGI ) and The Western Union Co. ( WU ) on report on Feb 11.

CIT GROUP (CIT): Free Stock Analysis Report

FLEETCOR TECH (FLT): Free Stock Analysis Report

MONEYGRAM INTL (MGI): Free Stock Analysis Report

WESTERN UNION (WU): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
More Headlines for: CIT , FLT , MGI , WU

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