Northern Trust (NTRS) Earnings: Will It Disappoint In Q2?

Northern Trust Corporation (NASDAQ:NTRS) is scheduled to report its second-quarter 2016 results before the opening bell on Wednesday, Jul 20.

In the last quarter, Northern Trust reported a positive earnings surprise of about 6% and 7.4% year-over-year growth, primarily driven by higher revenues. The quarter also witnessed a rise in assets under custody. However, results reflected increasing operating expenses and provisions. Moreover, the assets under management declined during the quarter.

Will Northern Trust be able to defy the challenges that the industry experienced during the quarter beat earnings? Let's see what factors might be influencing the earnings report this time around.

Northern Trust has a decent earnings surprise history as depicted in the chart below:

NORTHERN TRUST Price and EPS Surprise

NORTHERN TRUST Price and EPS Surprise | NORTHERN TRUST Quote

Factors to Influence Q2 Results

As a player in the custody banking space, Northern Trust derives most of its revenues from non-interest sources of income, particularly trust, investment and other servicing fees, which constituted over 64% of its revenues in first-quarter 2016.

These fees are highly dependent upon the market value of clients’ assets under custody, which, in turn, is directly linked to the performance of equity markets. In the second quarter, overall U.S. stocks recorded modest gains in spite of weakening economic data and the turmoil caused by Brexit. S&P 500 Index increased 2%, while the index measuring international equity performance – the MSCI EAFE Index – lost 1.5% during the quarter.

Despite a rise in loan demand, revenue growth will remain suppressed (similar to previous quarters). This is because of a persistent low rate environment on net interest income, though a small uptick might be recorded.

However, the quarterly results are likely to show higher expenses, exhibiting Northern Trust’s continued investments in new business activity along with higher regulatory and compliance costs.

Most importantly, this bank failed to impress analysts with its level of activities during the quarter. The Zacks Consensus Estimate has remained stable at $1.05 per share over the last seven days.

Earnings Whispers

Our proven model shows that Northern Trust is likely to miss the Zacks Consensus Estimate in the second quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for an earnings beat. Unfortunately, this is not the case here, as elaborated below.

Zacks ESP: The Earnings ESP for Northern Trust is -0.95%. This is because the Most Accurate estimate of $1.04 is below the Zacks Consensus Estimate of $1.05.

Zacks Rank: Northern Trust’s Zacks Rank #4 (Sell) further lowers the predictive power of ESP. Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model they have the right combination of elements to post an earnings beat this quarter.

Comerica Inc. (NYSE:CMA) has an earnings ESP of +1.47% and carries a Zacks Rank #3. It is scheduled to report its second-quarter results on Jul 19.

The earnings ESP for Regions Financial Corp. (NYSE:RF) is +5.00% and it carries a Zacks Rank #3. The company is expected to release its second-quarter results on Jul 19.

Federated Investors, Inc. (NYSE:FII) has an earnings ESP of +2.13% and carries a Zacks Rank #3. It is slated to report its second-quarter results on Jul 28.

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