Ally Financial (ALLY) Stock Up On Q2 Earnings Beat, Costs Rise

Shares of Ally Financial Inc. (NYSE:ALLY) gained 6.5%, following the release of second-quarter 2019 results. Adjusted earnings of 97 cents per share surpassed the Zacks Consensus Estimate of 88 cents. Further, the bottom line compared favorably with 83 cents recorded in the prior year quarter.

Results benefited from an improvement in revenues. Moreover, the quarter witnessed growth in deposit balances. However, higher non-interest expenses along with rise in provisions were major headwinds.

After taking into consideration non-recurring items; net income available to common shareholders (GAAP basis) for the reported quarter was $582 million, increasing from $349 million registered in the prior-year quarter.

Revenues Improve, Expenses Rise

Total net revenues were nearly $1.55 billion, up 6.4% year over year. Further, the figure marginally surpassed the Zacks Consensus Estimate of $1.54 billion.

Total non-interest expenses increased 5% year over year to $881 million. This rise was due to an increase in all components of expenses.

Credit Quality: Mixed Bag

Non-performing loans of $903 million at the end of the reported quarter were down marginally from $905 million reported in the prior-year quarter end. However, provision for loan losses increased 12% year over year to $177 million.

Strong Balance Sheet, Capital Ratios Mixed

Total net finance receivables and loans amounted to $127.93 billion as of Jun 30, 2019, compared with $128.77 billion as of Mar 31, 2019. Deposits totaled $116.33 billion, increasing from $113.30 billion as of Mar 31, 2019.

As of Jun 30, 2019, total capital ratio was 12.7%, unchanged from the prior-year quarter end. Tier I capital ratio was 11.2%, up from 11.1% as of Jun 30, 2018.

Share Repurchases

During the reported quarter, the company repurchased shares worth $229 million, which marked the completion of its 2018 capital plan.

Other Developments

Concurrently, the company announced that it will acquire Health Credit Services, a point-of-sale payment provider, for $190 million. The transaction, which is expected to close later this year, will help Ally Financial further enhance its product offerings.

Our Take

The company witnessed revenue growth in the reported quarter. Its initiatives toward diversifying the revenue base are likely to continue to support profitability in the quarters ahead. Moreover, its steady capital deployment actions reflect strong balance sheet position. However, persistently increasing expenses, as witnessed in the quarter, and use of high debt levels remain major near-term concerns.

Currently, Ally Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance & Earnings Release Date of Other Companies

Washington Federal’s (NASDAQ:WAFD) third-quarter fiscal 2019 (ended Jun 30) earnings were 67 cents per share, surpassing the Zacks Consensus Estimate of 64 cents. The figure reflected year-over-year growth of 10%.

Hancock Whitney Corporation’s (NASDAQ:HWC) second-quarter 2019 operating earnings per share of $1.01 were in line with the Zacks Consensus Estimate. The bottom line was 5.2% higher than the year-ago figure.

Associated Banc-Corp (NYSE:ASB) is slated to report results on Jul 25.

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