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Citigroup First Quarter Results Beat Estimates

Citigroup Beats Estimates With 1QFY14 Results
By: Micheal Kaufman
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Citigroup Inc (C), a global diversified financial services company, has reported better-than-expected financial results for the first quarter of its 2014 fiscal year (1QFY14; ended March 31). Its stock opened up 4.2% today, and was trading at $47.27 as of 10:11 AM EST. Here are the key takeaways from the announcement:

Citigroup Posts 1QFY14 Earnings Beat

Citigroup has reported consolidated net revenues of $20.12 billion for 1QFY14, which is a 2.2% fall year-over-year (YoY) but 3.7% better than analysts’ estimates of $19.39 billion. The company had missed revenue estimates for the past two consecutive quarters by 2% and 2.6%, respectively.

The bank reported net income of $4.1 billion for the quarter, a 3.6% improvement year-over-year (YoY). This translates into per share earnings (EPS) of $1.30 (adjusted), which beats mean EPS estimates of $1.137 by 14.3%. The company had missed earnings estimates for the past two consecutive quarters as well, and the earnings beat today has been taken positively by investors, as indicated by the movement in Citigroup’s stock price.

Citigroup’s Key Metrics in 1QFY14

Citigroup’s net interest margin (NIM) expanded 4 basis points (bps) to 2.9% during the quarter. The bank reported a tier-1 common ratio of 10.4%, which was much better than the Fed’s requirement of 5%. Citi’s tangible book value, calculated on the basis of the per share value of equity after removing intangible assets like goodwill, also increased 7.7% YoY to $56.40.

The New York-based bank’s book value increased 6% during the same period to $66.25. However, its return on equity (ROE) decreased 40 bps to 7.8%, but this had previously already been intimated by the bank to its investors.

Last Friday, JPMorgan Chase & Co. (JPM), another major diversified financial services company, had missed revenue and earnings estimates for its latest reported quarter. JPMorgan reported an ROE of 10% at the end of its first quarter, and a tier-1 common ratio of 10.9%. Its stock price shed 3.7% ($2.10) following the announcement on Friday.

Citigroup’s Performance By Segment

The bank divides its business in two broad segments: Citicorp and Citi Holdings. They contributed 92.8% and 7.2% respectively of the bank’s total revenues for the quarter.

During the quarter, Citicorp contributed $18.68 billion to the company’s revenues, 5% less than the same period of the previous year. The segment contributed $4.44 billion of the company’s total earnings, an 8% decline YoY.

Citi Holdings, on the other hand, contributed $1.44 billion to the company’s topline, up 58% YoY; and a loss of $292 million, which is a 63% improvement from the previous-year period.

Flashback

The bank has recently been in the news for all the wrong reasons, and the earnings release finally gives it some breathing space. At the end of last month, Citigroup had failed the Fed’s Comprehensive Capital Analysis and Review (CCAR) stress test on the basis of certain qualitative reasons, and the bank had seen its stock price come under pressure. In its capital plan, which the Fed rejected, the bank had sought to quintuple dividends to $0.05 and increase share buybacks to $6.4 billion.

Earlier this month, Citigroup also settled claims for $1.13 billion related to residential mortgage-backed securities (MBS) sold by the bank. The claims were brought forward by 18 institutional investors represented by Gibbs & Bruns LLP. The 18 parties to the settlement include Goldman Sachs (GS), BlackRock Inc. (BLK) and Pacific Investment Management Co.

Citigroup’s positive earnings announcement has brought positive momentum to the Select Sector Financials SPDR ETF (XLF), which is up 0.66% as of 10:09 AM EST.

Citigroup is currently trading at the lowest valuation among its peers, and Bidness Etc feels that this offers a promising entry point for investors looking to go long on the stock.

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