Cash America International, Inc. (CSH)

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Cash America International, Inc (CSH)

Q3 2010 Earnings Conference Call

October 21, 2010, 8:00 AM ET


Dan Feehan - President, CEO

Tom Bessant - EVP, CFO


David Burtzlaff - Stephens Incorporated

John Hecht - JMP Securities

Liz Pierce - ROTH Capital Partners

Bill Armstrong - CL King & Associates

[Charles Ruff - Inside Investments]

Henry Coffey - Stern, Agee

John Rowan - Sidoti & Company



Ladies and gentlemen, thank you for standing by and welcome to Cash America International Incorporated third quarter earnings release conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions).

As a reminder, this conference is being recorded Thursday, October 21, 2010. It is now my pleasure to introduce Dan Feehan, President and Chief Executive Officer. You may proceed, sir.

Dan Feehan

Thank you and good morning, ladies and gentlemen. Welcome to our call for the third quarter of 2010. As normal, Tom Bessant, our Chief Financial Officer is joining me this morning and he'll lead off with a review of our financial performance for Q3. I'll then rejoin the call and provide my perspective on the quarter and then we'll open it up for questions.

Before beginning our comments, please bear with me while I read our Safe Harbor disclosure. While on this call, comments made by Tom or me may contain forward-looking statements about the business, financial condition, and prospects of Cash America International, Inc. and its subsidiaries.

The actual results of the company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties, including, without limitation, the risks and uncertainties contained in the company's filings with the Securities and Exchange Commission.

These risks and uncertainties are beyond the ability of the company to control nor can the company predict, in many cases, all the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements.

When used in this call, terms such as believes, estimates, plans, expects, and anticipates, and similar expressions or variations as they relate to the company or its management are intended to identify forward-looking statements. The company disclaims any intention or obligation to update or revise any forward-looking statements.

I also want to mention, before we proceed, that a reconciliation of any non-GAAP information provided on this call to the most directly comparable GAAP information is included in the financial statements issued with the earnings release today and is also available on the Investor Relations section of our Web site at Non-GAAP financial information is not meant as a substitute for GAAP results, but is included solely for the informational and comparative purposes.

Now I'll turn it over to Tom.

Tom Bessant

Thanks, Dan. Good morning, everyone. As you've seen in our press release from this morning, Cash America reported a 24% increase in net income and a 16% increase in total revenue for the third quarter ended September 30, 2010.

Consistent with our pre-release from last week, earnings per share were $0.90 which is $0.02 above our guidance of between $0.82 and $0.88 per share provided to you during our July conference call.

As described in the press release, the company benefited from continued strong momentum out of our consumer loan businesses being driven by higher loans written in the United States and our European markets which is driving top line revenue growth. Loss rates in the consumer loan portfolio are down year-over-year providing additional efficiency and greater earnings power on the increase in revenue on the consumer loan piece.

Total loan portfolio in the United States continues to perform well while loan growth is not quite as high as typically is the case. The improved performance has increased loan yield and revenue to produce higher [font] service charges which are combining with increased gross profit margins on retail and scrap disposition to push overall contributions from pawn lending in the United States up nicely during the quarter which also contributed to our better-than-expected results for the period.

With that high level overview understood, we move into more of the metrics of the businesses and I'll start with the pawn lending activities which is really a tail of two distinct markets as our US business continues to perform well and is up nicely while the Mexico-based pawn operations are not where we were hoping they'd be at the end of the third quarter of 2010.

For purposes of these discussion, when I'm referring to the retail lending services segment, keep in mind it's all of our storefront operations consisting of our US pawn business, our consumer loan storefront platform, which in most cases has pawn activities within it, as well as our Mexico-based pawn operation.

Overall, US pawn metrics remain healthy as loans written increased 6% and US pawn loan balances were up a respectable 5% year-over-year at the end of the third quarter and better sequentially than the second quarter level which was up 3% year-over-year.

As I mentioned a moment ago, these higher balances are being complemented by increased loan yields on the portfolio which increased 430 basis points to 131.6% compared to 127.3% in the prior year increasing pawn service charges year-over-year 8% in the US business.

Unfortunately, the struggles in Mexico with pawn balances have continued and the quarter ending balance of loans in Mexico fell 9% to $20.4 million which caused the consolidated pawn loan balances to finish Q3 210 up 3% to $196.3 million.

Disposition activities continue to be a bright spot for the overall retail lending services business. Retail sales, excluding scrap gold and diamonds, were up almost 8% on a 120-basis point increase in gross profit margins leading to an 11% increase in gross profit from retail sales, excluding scrap gold and diamond activity during the quarter.

The higher prevailing price of gold led to an increase in gross profit margin from commercial disposition activities, which includes the liquidation of refined gold, platinum and diamonds to 32.4% in the current period compared to 28.5% last year.

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