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Capital One Earnings – A Mixed Package

October 20, 2014 | About:

Capital One Financial’s (NYSE:COF) announcement of the third-quarter results on October 16 made analysts’ expectations more bearish as the quarter results missed their estimates. The company’s net income has been growing for the past three straight quarters. As the company markets a variety of financial products and services through its banking and non-banking subsidiaries, Thomson Reuters’ analysts had estimated that even in the quarter the company’s revenue would reach a target of $5.56 billion and earnings of $1.94 per share. But as the results were disappointing with drop in revenue and profits, compared to last year’s similar quarter, the stock market reacted negatively with the shares down around 2% in the after-hours trading. Let’s dig deeper into the financial playbook of Capital One to find out the major highlights of the third quarter. So, here we go.

Mixed set of numbers

The company reported third-quarter earnings standing at $1.86 per share, on $5.6 billion in revenue. The revenue was down when compared to the third quarter of 2013 when it stood at $5.65 billion. Period-end deposits fell less than 1% to $204.3 billion. Average deposits also fell less than 1% to $205.2 billion. The interest-bearing rate was flat at 0.60%. Capital One boosted its loan loss provision by 17% to $993 million when compared on year-over-year basis, as the company set aside money for meeting the future losses in its growing credit-card loan portfolio.

It was notable that while the profit read at $1.08 billion, which was down from $1.11 billion a year earlier, domestic credit-card loans rose 3% to $73.1 billion representing the second consecutive quarter of expansion. In fact, the domestic credit cards loans rose on a year-over-year basis in the third quarter for the first time since 2008.

Dividend payout remains stable

Despite lower income reported in the quarter, the bank maintained its dividend per share at $0.30 a share soothing investors’ nerves to a considerable extent. CEO Richard D. Fairbank stated, “Capital One delivered another quarter of solid results for the company and across our businesses, and we continued to return capital to our shareholders as we execute our announced $2.5 billion share repurchase program.”

The management stated in the earnings call that they reduced the net share count by 3 million shares in the quarter primarily through the share buyback scheme. Approximately 500 million of the share buyback program was completed in the third quarter and an additional 1 billion shares are expected to be bought over the next two quarters. This clearly demonstrates the ability of the company to reward its stockholders with regular payouts and repurchase program.

Management expectations remain upbeat

The top brass are satisfied that they are on track to deliver the pre-provision earnings of about $10 billion in the fiscal year. The company management remains upbeat for the upcoming fiscal year as well for which they believe the average loans increase would drive the revenue for next year. Capital One announced that are expecting the efficiency ratio to be between 53% and 54% (excluding non-recurring items) in the next fiscal year. Though the company personnel did not share any proper fourth-quarter guidance, they stated that continued opportunities in the domestic card business would drive revenue higher, and the marketing expense would also be higher in the upcoming quarter of the fiscal year.

Concluding thoughts

Though Capital One’s top and bottom lines were a bit weak this quarter, it is slated to show phenomenal growth in the digital world, as the company is investing in Capital One 360 aimed to become the national digital banking platform in the near future. The company is actively working toward returning capital to the shareholders since capital distribution remains an important decisive factor on what gets ultimately delivered to the stockholders. So, investors need not worry and can keep their positions unaltered for the time being.

About the author:

We are a group of analysts exploring and analyzing different domains of business and writing reviews based on information available in public domain web portals. We do not hold any stock or investment position in any of the companies that we write for.

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