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Ally Financial (ALLY) Down Despite Q4 Earnings & Revenue Beat

Ally Financial’s ALLY fourth-quarter 2021 adjusted earnings of $2.02 per share surpassed the Zacks Consensus Estimate by a penny. The bottom line showed a rise of 26.3% from the year-ago quarter’s number.

Results benefited primarily from an improvement in revenues, and higher loans and deposit balances. However, a rise in expenses as well as higher provisions hurt results to some extent. This could have been a reason behind the company’s stock losing 3.9% following the earnings release.

After considering non-recurring items, net income (on a GAAP basis) was $624 million or $1.79 per share, down from $687 million or $1.82 per share in the prior-year quarter.

In 2021, adjusted earnings of $8.61 per share beat the consensus estimate of $6.70 and increased substantially from $3.03 in 2020. Also, net income of $3 billion was substantially up from $1.1 billion in 2020.

Revenues Improve, Expenses Rise

Total GAAP net revenues for the quarter were $2.21 billion, up 11.1% year over year. The top line beat the Zacks Consensus Estimate of $2.06 billion.

In 2021, net revenues increased 22.7% to $8.20 billion. The top line surpassed the consensus estimate of $7.72 billion.

Net financing revenues were up 3.8% from the prior-year quarter to $1.65 billion. The rise was driven by an increase in interest and fees on finance receivables and loans, total interest, and dividends on investment securities and operating leases.

Adjusted net interest margin was 3.82%, up 90 basis points (bps) year over year.

Total other revenues were $545 million, down 19.6% from the prior-year quarter.

Total non-interest expenses were up 6.5% year over year to $1.09 billion. The upswing stemmed from higher compensation and benefits expenses, and other operating expenses.

The adjusted efficiency ratio at the end of the fourth quarter was 44.4%, down from 49.8% in the year-ago period. A decline in efficiency ratio indicates an improvement in profitability.

Credit Quality: A Mixed Bag

Non-performing loans of $1.44 billion, as of Dec 31, 2021, were down 5.7% year over year. In the reported quarter, the company recorded net charge-offs of $103 million, down 48% from the prior-year quarter.

Provision for loan losses of $210 million was up substantially from $102 million in the prior-year quarter.

Loans & Deposit Balances Rise

As of Dec 31, 2021, total net finance receivables and loans amounted to $119 billion, up 7% from the prior quarter. Also, deposits increased 1.5% from the previous quarter’s end to $141.6 billion.

Capital Ratios Deteriorate

As of Dec 31, 2021, total capital ratio was 13.4%, down from 14.1% in the prior-year quarter. Tier I capital ratio was 11.9%, down from 12.4% as of Dec 31, 2020.

Share Repurchase Update

In 2021, the company repurchased approximately 40 million shares for $2 billion.

Our View

Ally Financial’s initiatives to diversify its revenue base will likely keep aiding its profitability. Given a solid balance sheet, the company remains well-poised to expand through acquisitions. However, persistently rising expenses (mainly owing to the company’s inorganic growth efforts) and higher provisions will likely hurt bottom-line growth.

Ally Financial Inc. Price, Consensus and EPS Surprise

Ally Financial Inc. Price, Consensus and EPS Surprise
Ally Financial Inc. Price, Consensus and EPS Surprise

Ally Financial Inc. price-consensus-eps-surprise-chart | Ally Financial Inc. Quote

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.

Earnings Release Dates of Other Consumer Loan Providers

Capital One COF is slated to report fourth-quarter and full-year 2021 results on Jan 25.

Over the past 30 days, the Zacks Consensus Estimate for Capital One’s quarterly earnings has reduced marginally to $5.14. This indicates a 2.8% decrease from the prior-year quarter.

Navient Corporation NAVI is slated to report fourth-quarter and full-year 2021 results on Jan 25.

Over the past 30 days, the Zacks Consensus Estimate for Navient Corporation’s quarterly earnings has increased 4.9% to 85 cents. This indicates a 3.4% decrease from the prior-year quarter.

Enova International ENVA is slated to report fourth-quarter and full-year 2021 results on Feb 3.

Over the past 30 days, the Zacks Consensus Estimate for Enova International’s quarterly earnings has remained unchanged at $1.14. This indicates a 52.3% decrease from the prior-year quarter.


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