Portfolio Recovery Associates Inc.
) reported second-quarter 2012 income from continuing operations of
$1.87 per share, surpassing the Zacks Consensus Estimate of $1.64.
The results also exceeded the prior-year earnings of $1.48.
In the quarter under review, net income came in at $32.0
million, compared with $25.6 million recorded in the second quarter
of 2011. Earnings were primarily driven by strong top-line growth
attributable to continuous improvement in cash collections.
Portfolio Recovery's total revenue in the reported quarter was
$147.9 million, showing a 29% upside from $114.8 million in the
year-ago period. Revenue also surpassed the Zacks Consensus
Estimate of $141 million.
The boost in revenue was driven by growth of 30% in cash
receipts to $247.7 million from $190.8 million in the prior-year
quarter. Portfolio Recovery deployed 42.0% of its cash collections
to reduce its owned debt portfolios, up from 41.8% in the year-ago
Cash collections jumped 32% year over year to $232.4 million
from $176.3 million in the year-ago period. Call center and other
collections posted a 14% increase, external legal collections
gained 52%, internal legal collections surged 58% and purchased
bankruptcy collections improved 35%, compared with the prior-year
However, Portfolio Recovery's revenue from its fee-for-service
businesses was $15.3 million, up from 14.5 million in the year-ago
quarter. The increase was mainly due to the revenues from the UK
business, which were partially offset by a decline in the
fee-for-service revenue from the U.S.
Operating margin declined 280 basis points year over year to
36.9% in the quarter under review. The decline was attributable to
higher legal collection expenses.
Balance Sheet and Capital Structure
As of June 30, 2012, cash and cash equivalents increased to
$42.6 million from $26.7 million recorded at the end of 2011.
Portfolio Recovery had $292 million outstanding under its line
of credit as of June 30, 2012. The remaining borrowing availability
under the line was $166.6 million as of June 30, 2012.
Portfolio recovery exited the quarter with total assets of $1.17
billion and shareholders' equity of $633.4 million.
Share Repurchase Update
Portfolio Recovery has a share repurchase authorization of $100
million. During the second quarter of 2012, the company repurchased
0.30 million shares at an average price of $68.62 under the
program. As of June 30, 2012, the company had remaining
authorization of $77 million under the share repurchase
Portfolio Recovery's bottom-line results have shown great
improvement over the past few quarters. Strong cash collections
coupled with improved operational efficiency led to an increase in
both the top and bottom lines in the reported quarter.
Even the performance of the fee-for-service business showed
improvement in the quarter, after posting weak results in the past
few quarters. The balance sheet also strengthened with higher cash
balance and increased shareholders' equity.
Portfolio Recovery's competitor
Encore Capital Group Inc.
) will report its second-quarter financial results after the market
closes on August 2, 2012.
We retain our Neutral recommendation on Portfolio Recovery
Associates. The quantitative Zacks #3 Rank (short-term Hold rating)
for the company indicates no clear directional pressure on the
shares over the near term.
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