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Encore Capital Beats on Q3 Earnings and Revs

Zacks Equity Research

Encore Capital Group Inc. (ECPG) reported third-quarter 2013 operating net income of 99 cents per share, which surpassed the Zacks Consensus Estimate of 93 cents by 6.5%. The results also improved significantly by 20.7% from the prior-year quarter number of 82 cents per share.

The bottom-line growth during the quarter was primarily driven by substantial improvement in the top line as well as contribution from the recent acquisition of a controlling interest in Cabot Credit Management.

Encore Capital reported net income of 82 cents per share in the third quarter, on par with year-ago earnings. The net income figure included the impact of convertible notes non-cash interest and issuance cost amortization of 4 cents per share, acquisition related legal and advisory fees of 18 cents per share and favorable effect of tax credits applicable to prior periods worth 5 cents per share,

Operational Update

Total revenues of Encore Capital increased 62.2% year over year to nearly $235.5 million. The top line also exceeded the Zacks Consensus Estimate of $206 million by 14.3%. Growth in sales was fueled by significantly higher revenues from receivable portfolio as well as improvement in other revenues during the quarter.

Gross collections of $379.7 million from the portfolio purchasing and recovery business escalated 54% year over year for Encore Capital.

Adjusted operating expenses of $154.7 million shot up 55.2% year over year to $154.7 million. Rise in expenses resulted from higher salaries and employee benefits, cost of legal collections, other operating expenses, collection agency commissions and higher general and administrative expenses.

Encore Capital’s third-quarter adjusted earnings before interest, taxes, depreciation and amortization (:EBITDA) grew 55% year over year to $234.4 million.

During the quarter, Encore Capital completed the acquisition of a controlling interest in Cabot Credit Management that provided the former with opportunities to deploy capital in a new market, in order to derive significant earnings. The acquisition drove Remaining Collections $1.5 billion higher to $4 billion as of Sep 30, 2013.

Financial Update

As of Sep 30, total assets of Encore Capital stood at $2.59 billion compared to $1.17 billion at 2012-end.

At the end of third quarter, Encore Capital’s cash and cash equivalents surged significantly to $110.2 million from $17.5 million as of Dec 31, 2012.

Including $559 million of acquisition of Cabot Credit Management’s portfolio, investment in receivable portfolio totaled $617.9 million during the quarter.

Total debt amounted to $1.8 billion rising from $706 million at 2012-end.

Total shareholders’ equity of Encore Capital increased to $548 million, up 35% from the 2012-end level.

Performances by Others

Regional Management Corp. (RM) reported net income of 61 cents for the third quarter of 2013, a penny above the Zacks Consensus Estimate of 60 cents. Results also improved 3.4% year over year.

Discover Financial Services (DFS) reported third-quarter 2013 earnings per share (EPS) of $1.20, in line with the Zacks Consensus Estimate. However, EPS declined 3.2% from the year-ago quarter’s earnings of $1.24.

Capital One Financial Corp. (COF) reported third-quarter 2013 earnings per share of $1.86, which beat the Zacks Consensus Estimate of $1.77. However, earnings were 7.5% below $2.01 earned in the prior-year quarter.

Zacks Rank

Encore Capital presently carries a Zacks Rank #4 (Sell).

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