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Goldman (GS) Q2 Earnings Beat Estimates, Revenues Rise Y/Y

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The Goldman Sachs Group, Inc.’s GS second-quarter 2021 earnings per share of $15.02 have significantly surpassed the Zacks Consensus Estimate of $9.90. Also, the bottom line compares favorably with 53 cents per share earned in the year-earlier quarter.

The stock rallied 1.9% during the pre-market trading, reflecting investors’ optimism with the results. Notably, the full-day trading session will display a clearer picture.

While the bank’s results were hurt by lower Fixed Income, Currency and Commodities Client Execution (“FICC”) revenues; strength in equity underwriting business, wealth management and consumer banking business acted as tailwinds.

Impressive financial advisory revenues, owing to the rise in industry-wide completed mergers and acquisition transactions, acted as a tailwind. Moreover, provision benefits supported the results.

Net earnings of $5.49 billion increased substantially from $373 million in the prior-year quarter.

Revenues Jump, Expenses Fall

Net revenues of $15.4 billion rose 16% from the year-ago quarter. The top line beat the Zacks Consensus Estimate of $11.7 billion.

Total operating expenses declined 17% year over year to $8.64 billion. Lower non-compensation expenses, offset by higher compensation and benefits, and transaction-based and technology expenses chiefly resulted in the decline.

Notably, net provisions for litigation and regulatory proceedings of $226 million were recorded compared with the prior-year quarter’s $2.96 billion.

Provision for credit losses was a benefit of $92 million against provisions of $1.59 billion in the prior-year quarter. Reserve reductions on wholesale and consumer loans were partially offset by portfolio growth.

Segment Performance Improve

After record net revenues in the first quarter, the Investment Banking division generated its second-highest quarterly revenues of $3.61 billion in the reported quarter, up 36% year over year. Results reflect higher financial advisory revenues (up 83%), marking an increase in completed merger and acquisition deals.

Corporate lending revenues of $159 million compared favorably with negative revenues of $76 million in the prior-year quarter. Increased financial advisory revenues (up 7%) were on the upside, owing to the rise in equity underwriting.

The Global Markets division recorded revenues of $4.9 billion, down 32% year over year. The downtick indicated a decline in net revenues in FICC (down 45%) due to declining revenues from both FICC intermediation and FICC financing. Also, a decline in equities revenues (down 12%) was recorded due to lower equities intermediation, offset by higher financing.

The Consumer and Wealth Management division’s revenues of $1.7 billion were 28% higher year over year. Increased revenues from wealth management (up 25%) and consumer banking (up 41%) resulted in the upsurge.

The Asset Management division recorded revenues of $5.1 billion, indicating 144% year-over-year growth. The upside resulted from higher net revenues in lending and debt investments, equity investments, management, and other fees as well as incentive fees.

Assets under supervision were $2.30 billion, up 12.1% year over year.

Strong Capital Position

As of Jun 30, 2021, Common Equity Tier 1 ratio was 14.4% under the Basel III Standardized Approach, highlighting valid transitional provisions. The figure was up from the prior-year quarter’s 13.3%.

The company’s supplementary leverage ratio, on a fully phased-in basis, was 5.5% as of Mar 31, 2021, down from the prior-quarter figure of 6.6%.

Return on average common shareholders’ equity, on an annualized basis, was 23.7% in the reported quarter.

Capital Deployment Update

In the quarter under review, Goldman returned $1.44 billion of capital to common shareholders. This included $1 billion of share repurchases and $448 million of common stock dividends.

On Jul 12, the company’s board of directors sequentially hiked the quarterly dividend by 60% to $2 per common share from $1.25 per common share. The dividend will be paid out on Sep 29, 2021, to shareholders of record as of Sep 1, 2021.

Conclusion

Goldman’s results highlight another impressive quarter. Elevated mergers and acquisition deals along with strong initial public offering activities were driving factors. The company’s well-diversified business apart from its core investment banking operations continues to ensure earnings stability.

Its recent dividend hike will boost investor confidence in the stock.

The Goldman Sachs Group, Inc. Price, Consensus and EPS Surprise
The Goldman Sachs Group, Inc. Price, Consensus and EPS Surprise

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

Earnings Date of Other Banks

Bank of America BAC and Citigroup C and PNC Financial PNC are scheduled to come out with quarterly numbers on Jul 14.

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The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report

Bank of America Corporation (BAC) : Free Stock Analysis Report

Citigroup Inc. (C) : Free Stock Analysis Report

The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report

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