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Annaly's (NLY) Q3 Earnings Miss Estimates on Declining NII

Zacks Equity Research

Annaly Capital Management, Inc. NLY reported third-quarter 2019 core earnings, excluding premium amortization adjustment (PAA), of 21 cents per share, missing the Zacks Consensus Estimate of 25 cents. Moreover, the figure compares unfavorably with the year-ago tally of 30 cents.

Further, net interest income (NII) totaling roughly $152.4 million, witnessed a steep decline from the year-ago tally of $315.6 million.

Nonetheless, shares of the company inched up 0.6% in full-day trading session post earnings release, buoyed by broader market gains.

Moreover, the company managed to maintain a strong liquidity position, with unencumbered assets aggregating $7.2 billion in the September-end quarter.

Quarter in Detail

In the third quarter, average yield on interest-earning assets (excluding PAA) was 3.26%, up from the prior-year quarter’s 3.22%.

Net interest spread (excluding PAA) of 0.98% for the third quarter slid from 1.14% reported in the prior-year quarter. Net interest margin (excluding PAA) in the quarter came in at 1.10% compared with the 1.50% witnessed in third-quarter 2018.

The company’s investment at fair value of Agency MBS was around $114.5 million as of Sep 30, 2019, up from $89.3 million as of Sep 30, 2018.

Moreover, Annaly’s book value per share came in at $9.21 as of Sep 30, 2019, declining from $9.33 as of the prior-quarter end. Additionally, book value per share compared unfavorably to $10.03 as of Sep 30, 2018. At the end of the third quarter, the company’s capital ratio was 11.2%, down from the 12.6% reported at the end of third-quarter 2018.

Leverage was 7:3:1 as of Sep 30, 2019, compared with 5:9:1 as of Sep 30, 2018. The company offered an annualized core return on an average equity of 8.85% in the July-September quarter, down from the prior-year quarter’s 10.85%.


During the third quarter, Annaly made significant securitization efforts within the residential credit business by completing a residential whole loan securitization for $463.4 million. Also, subsequent to the end of the quarter, it closed an additional securitization worth $465.5 million that boosted its aggregate issuance to $3.2 billion through seven transactions since the beginning of 2018. Amid robust activities in the U.S. housing market, these securitization efforts are encouraging.

Moreover, in June, the company authorized a $1.5-billion share-repurchase program, providing it additional flexibility within the company’s capital allocation framework. Since the beginning of third-quarter 2019, it has repurchased $223.2 million worth of common stock, including $68.2 million of shares repurchased subsequent to the third-quarter end. This indicates the company’s commitment to increase shareholder value through share buybacks.

Annaly Capital Management Inc Price, Consensus and EPS Surprise

Annaly Capital Management Inc Price, Consensus and EPS Surprise

Annaly Capital Management Inc price-consensus-eps-surprise-chart | Annaly Capital Management Inc Quote

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

Performance of Other REITs

Mack-Cali Realty Corp’s CLI third-quarter 2019 core FFO per share of 38 cents missed the Zacks Consensus Estimate by a whisker. The figure also compared unfavorably with the year-ago quarter’s reported tally of 43 cents.

Boston Properties Inc.’s BXP third-quarter FFO per share of $1.64 surpassed the Zacks Consensus Estimate of $1.62. Nonetheless, the reported tally remained flat year over year.

Ventas, Inc. VTR delivered third-quarter 2019 normalized FFO per share of 96 cents, beating the Zacks Consensus Estimate of 94 cents. However, the figure came in lower than the year-ago tally of 99 cents.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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