Credit Acceptance Corp (CACC) Reports Decline in Q4 and Full Year 2023 Net Income
Net Income: Q4 net income decreased to $93.6 million from $127.3 million in Q4 2022.
Adjusted Net Income: Q4 adjusted net income was $129.1 million, down from $156.1 million in the prior year.
Diluted EPS: Q4 diluted EPS fell to $7.29 from $9.58 in Q4 2022.
Loan Portfolio: The average balance of the loan portfolio grew by 9.1% on a GAAP basis.
Consumer Loan Assignments: Increased to 21.7% initial spread in Q4 2023 from 20.9% in Q4 2022.
Cost of Debt: Average cost of debt increased due to higher interest rates on recent financings.
On January 31, 2024, Credit Acceptance Corp (NASDAQ:CACC) released its 8-K filing, announcing its financial results for the fourth quarter and full year of 2023. The company, a leading provider of automobile loans through a nationwide network of dealers, reported a decrease in net income and diluted earnings per share (EPS) for both the quarter and the full year compared to the same periods in the previous year. Despite these challenges, the company saw growth in its loan portfolio and an increase in the initial spread on Consumer Loan assignments.
Performance Overview
Credit Acceptance's Q4 net income decreased to $93.6 million, or $7.29 per diluted share, from $127.3 million, or $9.58 per diluted share, in Q4 2022. Adjusted net income for Q4 was $129.1 million, or $10.06 per diluted share, compared to $156.1 million, or $11.74 per diluted share, in the prior year. The company attributed the decline primarily to a larger decrease in forecasted collection rates, which reduced forecasted net cash flows from the loan portfolio. Additionally, there was a decrease in forecasted profitability for Consumer Loans assigned from 2020 through 2022, mainly due to a decline in forecasted collection rates and slower forecasted net cash flow timing.
Despite these headwinds, Credit Acceptance experienced growth in Consumer Loan assignment volume and the average balance of its loan portfolio, which is now the largest in the company's history. The initial spread on Consumer Loan assignments increased to 21.7% in Q4 2023 from 20.9% in the same period of the previous year. However, the company's average cost of debt also increased, primarily due to higher interest rates on recent financings.
Financial Achievements and Challenges
The growth in the average balance of the loan portfolio and the increase in the initial spread on Consumer Loan assignments are significant achievements for Credit Acceptance, as they indicate the company's ability to expand its lending operations and potentially improve profitability per loan. However, the challenges faced, such as the decrease in forecasted collection rates and profitability, may lead to problems if these trends continue, as they could impact the company's future cash flows and earnings.
Key Financial Metrics
Important metrics from the earnings report include:
"Unit and dollar volumes grew 26.7% and 21.3%, respectively, as compared to the fourth quarter of 2022. The average balance of our loan portfolio, which is our largest-ever, increased 9.1% and 13.4% on a GAAP and adjusted basis, respectively, as compared to the fourth quarter of 2022."
These metrics are crucial as they reflect the company's core business growth and its ability to generate revenue from finance charges, which is the largest source of revenue for Credit Acceptance.
Analysis of Company's Performance
The company's performance in Q4 and the full year of 2023 shows resilience in expanding its loan portfolio despite facing a challenging environment with lower forecasted collection rates. The increase in the initial spread on Consumer Loan assignments suggests that Credit Acceptance is adjusting its pricing strategies to maintain profitability. However, the increased cost of debt and the decline in net income highlight the need for careful management of financial resources and risk in the future.
For a more detailed analysis and to view the complete financial tables, readers are encouraged to visit the full 8-K filing.
Investors and stakeholders will be closely monitoring how Credit Acceptance navigates these challenges and capitalizes on its achievements to ensure sustainable growth and profitability in the coming periods.
Explore the complete 8-K earnings release (here) from Credit Acceptance Corp for further details.
This article first appeared on GuruFocus.
