Thursday, October 15, 2015

Citigroup 2015 Q3 Earnings; EPS Jumps Roughly 37% YoY on Significant Expense Reductions

Citigroup reported a diluted EPS figure for Q3 of 2015 of $1.31 per share, translating to an approximate increase of 37% from the prior year’s number ($0.95 per share). Despite revenues declining ~8% year over year to $18.50 billion, the decline was significantly offset by an 18% Y/Y decline in non-operating expenses, converging on a reported figure of $10.66 billion. Analysts reacted positively to the earnings and the stock traded approximately 2% higher in early market hours.

To provide greater detail, adjusted revenues for Citicorp came in at $17.05 billion, a decline of 5% Y/Y. Breaking this down, revenues from the Institutional Clients Group and Global Banking segment decreased 3% and 8%, respectively, Y/Y while revenues from the Corporate/Other segment increased significantly. At Citiholdings, adjusted revenues came in at $1.44 billion, a decline of 32% Y/Y due to reduced net gains on asset sales and a decline in client’s assets. The significant decrease in non-operating expenses reflect drastic declines in legal and repositioning costs.

With respect to the balance sheet, Citigroup reported a decline in both deposits as well as loans. Deposits declined 4% Y/Y to $904 billion while loans declined 5% Y/Y to $622 billion. At the end of the period, total assets were $1.81 trillion, a decline of 4% Y/Y. Provisions for loan losses also decreased to 2.21% of total loans ($13.6 billion) from 2.60% of total loans ($16.9 billion) in the prior year quarter.

We think the results represent a pretty good quarter for Citigroup. While revenues declined Y/Y and the low interest rate environment continues to hurt net interest figures, Citigroup’s expense management, and therefore decline in non-operating expenses, helps support and reveal its underlying value. We think that Citigroup will need to continue to practice diligent expense management while rates remain low in order to outperform its competitors. We purchased 143 shares of Citigroup at an average cost of $48.25 per share and remain confident in a price target of ~$58.00 per share.

No comments: