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Citigroup (C) Q3 Earnings Beat on Cost Control, Revenues Up

Zacks

Driven by expense management, Citigroup C delivered a positive earnings surprise of 4.8% in third-quarter 2018. Earnings from continuing operations per share of $1.74 for the quarter handily outpaced the Zacks Consensus Estimate of $1.66. Also, earnings climbed 22.5% year over year.

Net income came in at $4.6 billion or $1.73 per share compared with $4.1 billion or $1.42 reported in the prior-year quarter.

Shares of Citigroup climbed more than 3% in pre-market trading, highlighting investors’ optimism on higher consumer banking, equity markets and fixed income market revenues, along with loan growth. Though investment banking revenues disappointed as strong advisory business was more than offset by lower underwriting fees on low client activity, reduced expenses and credit costs acted as tailwinds.

Citigroup’s costs of credit for the Sep-end quarter were down 1% year over year to $1.97 billion. This fall largely underlines reduced net credit losses of $1.8 billion and a credit reserve build of $192 million.

Top Line Solid, Expenses Drop

Revenues were almost stable year over year at $18.4 billion in the reported quarter. Excluding the gain on sale of an asset management business in Mexico, along with the foreign exchange translation impact, revenues spiked 4%. The reported figure was in line with the Zacks Consensus Estimate.

In the Institutional Clients Group (ICG), revenues came in at $9.2 billion in the quarter, down 2% year over year. Though fixed income revenues increased 9%, equity markets were up 1% and securities services revenues climbed 11%, lower investment banking revenues (down 8%) fully offset this rise.

Global Consumer Banking (GCB) revenues increased 2% year over year to $8.7 billion, mainly driven by higher revenues in Latin America, partly offset by decreased revenues in North America and Asia GCB.

Corporate/Other revenues came in at $494 million, slipping 5% from the prior-year quarter. The decline mainly underscores legacy assets runoff.

Operating expenses at Citigroup edged down 1% year over year to $10.3 billion. Efficiency savings and the winding-down of legacy assets muted the elevated volume-related expenses and ongoing investments.

Strong Balance Sheet

At the end of the quarter, Citigroup’s end of period assets was $1.93 trillion, up 2% year over year. The company’s loans grew 3% year over year to $675 billion. Deposits increased 4% year over year to $1.01 trillion.

Credit Quality Improves

Total non-accrual assets decreased 19% year over year to $4 billion. The company reported a dip of 15% in consumer non-accrual loans to $2.4 billion. In addition, corporate non-accrual loans of $1.5 billion plunged 25% from the year-earlier period.

Citigroup’s total allowance for loan losses was $12.3 billion at quarter end, or 1.84% of total loans, compared with $12.4 billion, or 1.91%, recorded in the year-ago period.

Solid Capital Position

At the end of the Jul-Sep quarter, Citigroup’s Common Equity Tier 1 Capital ratio was 11.8%, down from 13% in the year-ago quarter. The company’s supplementary leverage ratio for the quarter came in at 6.5%, down from 7.1% in the year-earlier quarter.

As of Sep 30, 2018, book value per share was $72.88, down 8% year over year, and tangible book value per share was $61.91, down 10% from the comparable period last year.

Capital Deployment

During third-quarter 2018, Citigroup repurchased about 75 million of common stock. Notably, the company returned around $6.4 billion to common shareholders as common stock repurchases and dividends.

Our Viewpoint

Citigroup reported impressive results even this time around, though the bank was unfavorably impacted by lower investment banking revenues. The company exhibits capital strength which continues to support its dividend and share-buyback program. Furthermore, overall rise in revenues and lower credit costs is commendable. Moreover, decline in expenses reflect prudent expense management.

One can consider a strong brand like Citigroup to be a sound investment option over the long term, given its global footprint and attractive core business. Additionally, the company’s growth looks encouraging amid rising rate environment, as well as anticipated ease of regulations.

Nevertheless, several legal hassles remain concerns for the company.

Citigroup Inc. Price, Consensus and EPS Surprise

Citigroup Inc. Price, Consensus and EPS Surprise | Citigroup Inc. Quote

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

Among other major banks, Bank of America Corporation BAC is scheduled to report third-quarter results on Oct 15, Goldman GS on Oct 16, while U.S. Bancorp USB will report on Oct 17.

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