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What's in Store for Northern Trust (NTRS) in Q2 Earnings?

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Northern Trust Corporation’s NTRS second-quarter 2018 results, scheduled on Jul 17, are expected to reflect a year-over-year rise in earnings and revenues.

In the first quarter, the company surpassed Zacks Consensus Estimate on higher revenues and benefit to provision for credit losses. Also, total client assets exhibited growth. However, escalating operating expenses remained a major drag.

Northern Trust has a decent earnings surprise history, delivering positive earnings surprises in three of the trailing four quarters with an average beat of 4.9%.

Northern Trust Corporation Price and EPS Surprise

Northern Trust Corporation Price and EPS Surprise | Northern Trust Corporation Quote

However, activities of Northern Trust during the second quarter were inadequate to win analysts’ confidence. Thus, over the last seven days, its Zacks Consensus Estimate for the to-be-reported quarter’s earnings has remained stable at $1.63. Nevertheless, the figure reflects a year-over-year improvement of 38%.

Also, the consensus estimate for sales of $1.49 billion indicates a 12.7% increase on a year-over-year basis.

Factors that might influence the company’s second-quarter performance:

Modest Rise in Net Interest Income (NII): Northern Trust’s interest income is expected to benefit from the expansion of margins due to higher interest rates. The Zacks Consensus Estimate projects an expansion of 16 basis points in net interest margin to 1.44%, year over year.

Also, average earnings assets are expected to increase, thus benefiting NII. The consensus estimate of $113 billion reflects a 3% year-over-year rise in earning assets.

Foreign Exchange (FX) Trading Revenues Might Decline: Due to a fall in FX trading volatility and volumes, the company’s revenues from FX trading might decrease.

C&I Trust, Investment and Other Servicing Fees Might Display Growth: Northern Trust uses a lag effect to calculate its corporate custody and investment management fees, i.e. the computations are based on the prior quarter-end valuations. Since the performance of equity markets was relatively better in the first quarter, the company will likely be able to register growth in custody, servicing and management fees.

Per the Zacks Consensus Estimate, C&I segment’s custody and fund administration fees are likely to increase 14% year over year to $374 million. Also, investment management and securities lending revenues are projected to grow 9% and 11.9%, respectively.

With improvement in all components, total C&I trust, investment and other servicing fees are expected to rise 11.7% year over year to $544 million.

Controlled Expenses: With Northern Trust’s cost-saving initiatives underway, expenses in the quarter might have remained under control.

Let’s have a look at what our quantitative model predicts:

Our proven model doesn’t conclusively show that Northern Trust will be able to beat the Zacks Consensus Estimate this time around, as it does not have the right combination of two key ingredients. Note that a stock with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better has significantly higher chances of beating estimates.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. 

Zacks ESP: The Earnings ESP for Northern Trust is -0.12%.

Zacks Rank: Northern Trust currently has a Zacks Rank of 3. While this increases the predictive power of ESP, we also need a positive ESP to be confident of an earnings beat.

Stocks to Consider

Here are a few finance stocks that you may want to consider, as these have the right combination of elements to post an earnings beat this quarter, according to our model.

Comerica Incorporated CMA is scheduled to release results on Jul 17. It has an Earnings ESP of +1.80% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cullen/Frost Bankers CFR is slated to release results on Jul 26. It has an Earnings ESP of +0.56% and carries a Zacks Rank of 3.

The Blackstone Group L.P. BX has an Earnings ESP of +3.70% and carries a Zacks Rank of 3. The company is also slated to release results on Jul 19.

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