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Credit Acceptance (CACC) Q4 Earnings Beat, Revenues Rise

Credit Acceptance Corporation CACC delivered a positive earnings surprise of 11.8% in fourth-quarter 2018. Adjusted earnings of $7.85 per share handily outpaced the Zacks Consensus Estimate of $7.02. Also, the bottom line compared favorably with $5.16 reported a year ago. Both earnings figures include certain non-recurring items.

Increase in revenues along with lower provisions supported the results. Also, the balance sheet remained strong during the fourth quarter. However, an increase in expenses posed a headwind.

After considering certain adjustments, net income was $151.9 million or $7.79 per share, down from $177.1 million or $9.10 per share in the prior-year quarter.

For full-year 2018, the company reported net income of $574 million or $29.39 per share, up from $470.2 million or $24.04 per share.

Revenues Improve, Expenses Rise

Total revenues in the reported quarter were $342.8 million, up 19.3% year over year. The increase was attributable to rise in all three components of revenues. Also, the reported figure beat the Zacks Consensus Estimate of $324.3 million.

For full-year 2018, the company reported revenues of $1.29 billion, up 15.8% on a year-over-year basis. Also, the figure topped the consensus estimate of $1.23 billion.

Operating expenses of $75.3 million rose 13.6% from the year-ago quarter. The rise was due to an increase in salaries and wages, general expenses and sales and marketing expenses.

Credit Quality: A Mixed Bag

Provision for credit losses decreased 28.9% year over year to $17.7 million. However, allowance for credit losses at the end of the reported quarter was $461.9 million, up from $429.4 million as of Dec 31, 2017.

Strong Balance Sheet

As of Dec 31, 2018, net loans receivable amounted to $6.2 billion, increasing from $5 billion as of Dec 31, 2017.

Total assets were $6.2 billion as of the same date, increasing from $5 billion on Dec 31, 2017. Also, total stockholders’ equity was $2 billion, up from $1.5 billion as of the end of December 2017.

Our Take

Credit Acceptance is well poised for growth in revenues given the continued rise in consumer loans. Furthermore, backed by a solid capital position, the company is expected to enhance shareholder value through continued share repurchases. However, increasing expenses might hurt bottom-line growth to some extent. Moreover, use of high debt remains a matter of concern.

Credit Acceptance Corporation Price, Consensus and EPS Surprise

Credit Acceptance Corporation Price, Consensus and EPS Surprise | Credit Acceptance Corporation Quote

Currently, Credit Acceptance 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 Finance Companies

Capital One COF reported fourth-quarter 2018 adjusted earnings of $1.87 per share that lagged the Zacks Consensus Estimate of $2.40. However, it compared favorably with the year-ago quarter’s adjusted earnings of $1.62.

Sallie Mae SLM reported fourth-quarter 2018 core earnings of 31 cents per share, which surpassed the Zacks Consensus Estimate of 27 cents. Moreover, the figure compares favorably with 10 cents in the prior-year quarter.

Texas Capital Bancshares Inc. TCBI reported negative earnings surprise of 13.8% in fourth-quarter 2018. Earnings per share of $1.38 lagged the Zacks Consensus Estimate of $1.60. However, the bottom line compares favorably with 84 cents recorded in the prior-year quarter.

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