Encore Capital Beats on Q4 Earnings, Lags Revs - Analyst Blog

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Encore Capital Group Inc. ( ECPG ) reported fourth-quarter 2013 operating earnings of $1.01 per share, which surpassed the Zacks Consensus Estimate of 99 cents by 2%. The results also improved significantly by 26.3% from the prior-year quarter's 80 cents.

Encore Capital reported net income of 87 cents per share in the fourth quarter of 2013, up from 79 cents in the fourth quarter of 2012. The figure included the impact of convertible notes non-cash interest and issuance cost amortization of 4 cents per share and acquisition related legal and advisory fees of 10 cents per share.

Operational Update

Total revenue at Encore Capital increased 64.8% year over year to nearly $237.1 million. However, the top line lagged the Zacks Consensus Estimate of $240 million. Year-over-year growth in sales was fueled by significantly higher revenues from receivable portfolio as well as improvement in other revenues during the quarter.

Gross collections of $351.3 million from the purchasing and recovery business escalated 52% year over year.

Total operating expenses of $168.5 million shot up 62.2% year over year from $103.9 million. Rise in expenses resulted from higher salaries and employee benefits, cost of legal collections, other operating expenses, collection agency commissions and higher general and administrative expenses. Adjusted operating expenses decreased to 42.1% compared with 42.8% in the prior-year quarter.

Encore Capital's fourth-quarter adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) grew 53% year over year to $205.96 million.

Full-Year Highlights

Encore Capital reported full-year 2013 operating earnings of $3.77 per share, which surpassed the Zacks Consensus Estimate of $3.74. The results also improved from the prior-year quarter number of $3.15 per share.

For full-year 2013, Encore Capital reported net income of $2.94, down from $3.04 in 2012. The figure included the impact of convertible notes non-cash interest and issuance cost amortization of 12 cents per share, acquisition related legal and advisory fees of 50 cents per share, acquisition related integration and severance costs and consulting fees of 13 cents per share and acquisition related other expenses of 8 cents per share in 2013.

For full-year 2013, total revenue of Encore Capital increased 38.9% year over year to nearly $773.4 million.

Gross collections increased 35% year over year to $1.28 billion in 2013.

Financial Update

As of Dec 31, 2013 total assets of Encore Capital stood at $2.7 billion compared with $1.17 billion at 2012-end.

As of Dec 31, 2013, Encore Capital's cash and cash equivalents surged significantly to $126.2 million from $17.5 million as of Dec 31, 2012.

Investment in Receivable portfolio totaled $1.6 million at end-2013, compared with $873.1 million at end-2012.

Total debt amounted to $1.9 billion, up from $706 million at 2012-end.

As of Dec 31, 2013, total shareholders' equity was $575.9 million, up 41.9% from $405.8 million at 2012-end.

Our Take

Encore Capital's fourth-quarter earnings surpassed the Zacks Consensus Estimate as well as the year-ago numbers. The company's strong focus on growth initiatives are impressive and enhance shareholders value. The company's cash position also remained strong at the end of 2013, which is expected to help the company invest in more such growth boosting initiatives.

Encore Capital has been actively expanding its global footprint through acquisitions in the U.K. and Latin America. Recently, the company acquired Peru and Columbia based specialty loan servicer, Refinancia. This buyout is in conformity to the Latin American expansion of the company and is expected to help Encore Capital generate higher returns. Further, the company is set to acquire the U.K.-based fund management firm, Grove Capital Management. On culmination (expected late in the first quarter or early in the second quarter of 20104), this deal is expected to help Encore Capital increase its portfolio of services and cater to the issuers in the U.K.. We believe all these endeavors are on the right track to drive growth for Encore capital. The long-term growth rate of the company is 14.7%.

Performances by Others

Discover Financial Services ( DFS ) reported fourth-quarter 2013 earnings per share (EPS) of $1.23, which exceeded the Zacks Consensus Estimate of $1.17 per share.

Fall in interest earnings assets affected Capital One Financial Corp. 's ( COF ) fourth-quarter earnings of $1.45 per share, which missed the Zacks Consensus Estimate by 5.8%.

SLM Corp 's ( SLM ) fourth-quarter 2013 core earnings were 61 cents per share, falling short of the Zacks Consensus Estimate of 70 cents.

Zacks Rank

Encore Capital presently carries a Zacks Rank #3 (Hold). Investors interested in the financial services space may also consider better-ranked stock, Discover with a Zacks Rank #2 (Buy).



CAPITAL ONE FIN (COF): Free Stock Analysis Report

DISCOVER FIN SV (DFS): Free Stock Analysis Report

ENCORE CAP GRP (ECPG): Free Stock Analysis Report

SLM CORP (SLM): 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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: EPS , COF , DFS , ECPG , SLM

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