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Schwab (SCHW) Beats on Q1 Earnings & Revenues, Costs Rise

Zacks Equity Research

Charles Schwab’s SCHW first-quarter 2019 earnings of 69 cents per share surpassed the Zacks Consensus Estimate of 66 cents. Also, earnings increased 25% from the prior-year quarter.

The stock rose more than 3% in pre-market trading, indicating that investors have taken the results in their stride. Notably, the full-day trading session will depict a better picture.

Revenue growth (driven by a rise in interest income) and an increase in total client assets aided the results. However, higher expenses and lower trading revenues acted as headwinds.

Net income available to common shareholders was $925 million, jumping 24% year over year.

Revenue Growth Offset by Rise in Expenses

Net revenues were $2.72 billion, up 14% year over year. The rise was supported by net interest revenues (up 33%) and other revenues (up 23%), partially offset by 11% fall in asset management and administration fees, and 8% decline in trading revenues. The reported figure outpaced the Zacks Consensus Estimate of $2.68 billion.

Total non-interest expenses increased 5% year over year to $1.46 billion. All expense components, except regulatory fees and assessments costs, and other expenses, increased on a year-over-year basis.

Pre-tax profit margin improved to 46.4% from 41.8%.

At the end of the first quarter, Schwab’s average interest-earning assets grew 15% year over year to $273.6 billion.

Annualized return on equity as of Mar 31, 2019, came in at 20%, up from 18% in the year-ago quarter.

Other Business Developments

As of Mar 31, 2019, Schwab had total client assets of $3.59 trillion (up 8% year over year). Also, net new assets — brought by new and existing clients — were $51.7 billion against outflows of $18.8 billion in new assets in the prior-year quarter.

Schwab added 386,000 new brokerage accounts in the reported quarter. As of Mar 31, 2019, the company had 11.9 million active brokerage accounts, 1.3 million banking accounts and 1.7 million corporate retirement plan participants.

Our Take

Focus on low-cost capital structure will continue to support Schwab’s performance in the quarters ahead. Also, the company’s initiatives to strengthen market share will likely support its profitability over the long term, despite the expectation of near-term reduction in trading revenues. However, continuous rise in expenses (due to rise in compensation costs) is expected to hurt the bottom line.

The Charles Schwab Corporation Price, Consensus and EPS Surprise

The Charles Schwab Corporation Price, Consensus and EPS Surprise | The Charles Schwab Corporation Quote

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

Earnings Release Dates of Other Investment Brokers

We now look forward to E*TRADE Financial Corp. ETFC, TD Ameritrade Holding Corp. AMTD and Raymond James Financial, Inc. RJF, which are slated to announce results on Apr 17, Apr 23 and Apr 24, respectively.

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