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Ally Financial's (ALLY) Stock Down Despite Q2 Earnings Beat

Ally Financial Inc. 's ALLY second-quarter 2018 adjusted earnings of 83 cents per share surpassed the Zacks Consensus Estimate of 71 cents. Also, the bottom line compares favorably with the prior-year quarter's figure of 58 cents.

Results benefited from a marginal increase in total net revenues and lower provisions. Also, improvement in loans and deposit balances was a positive factor. However, higher expenses witnessed during the reported quarter hurt results to some extent. Moreover, capital ratios decreased on a year-over-year basis in the quarter. Probably due to these negative factors, shares of the company have declined nearly 2%, following the earnings release.

After taking into consideration non-recurring items, net income available to common shareholders (GAAP basis) for the reported quarter was $349 million or 81 cents per share, increasing from $252 million or 55 cents registered in the prior-year quarter.

Revenues Improve, Expenses Rise

Total net revenues for the quarter under review increased marginally year over year to $1.46 billion, owing to rise in net financing revenues. However, the figure lagged the Zacks Consensus Estimate of $1.47 billion.

Total non-interest expenses increased 3.6% year over year to $839 million. The rise was due to an increase in compensation and benefits expenses along with other operating expenses.

Credit Quality: Mixed Bag

Non-performing loans of $905 million at the end of the reported quarter were up 15.6% year over year. However, provision for loan losses decreased 41.3% year over year to $158 million.

Strong Balance Sheet, Capital Ratios Decline

Total net finance receivables and loans amounted to $124.29 billion as of Jun 30, 2018, compared with $124.05 billion as of Mar 31, 2018. Deposits totaled $98.73 billion, increasing from $97.45 billion as of Mar 31, 2018.

As of Jun 30, 2018, total capital ratio was 12.7%, decreasing from 12.8% registered in the prior-year quarter. Similarly, Tier I capital ratio was 11.1%, down from 11.2% as of Jun 30, 2017.

Share Repurchases

During the reported quarter, the company repurchased shares worth $195 million.

Our Take

Ally Financial's initiatives toward diversifying revenue base are likely to support profitability in the quarters ahead. Also, improving net interest margin (NIM), driven by higher rates and loan growth is likely to aid top-line growth. Further, the company's steady capital deployment plan reflects a strong balance sheet position. However, persistently increasing expenses and the use of high debt levels remain major near-term concerns.

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 #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Performance of Other Finance Companies

Among others, Capital One Financial Corporation's COF second-quarter 2018 adjusted earnings of $3.22 per share easily surpassed the Zacks Consensus Estimate of $2.63. Results benefited from rise in revenues and strength in card business. Further, a decline in provision for credit losses and stable expenses were the tailwinds. However, a sequential fall in loans and deposits hurt the results to some extent.

Sallie Mae SLM delivered a positive earnings surprise of 8.7% in second-quarter 2018. The company reported core earnings of 25 cents per share, surpassing the Zacks Consensus Estimate of 23 cents. Increase in net interest income, aided by rising rates and non-interest income, were tailwinds. The private education loan portfolio and deposits grew considerably. However, these positives were offset by elevated expenses and poor credit quality.

Navient Corporation's NAVI second-quarter 2018 adjusted core earnings per share of 49 cents surpassed the Zacks Consensus Estimate by a penny. Results benefited from a decline in provisions. However, lower revenues, along with escalated expenses, were key headwinds.

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SLM Corporation (SLM): Free Stock Analysis Report

Capital One Financial Corporation (COF): Free Stock Analysis Report

Navient Corporation (NAVI): Free Stock Analysis Report

Ally Financial Inc. (ALLY): 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.


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

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