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Schwab (SCHW) Q3 Earnings & Revenues Beat, Expenses Rise

Zacks Equity Research

Charles Schwab’s SCHW third-quarter 2019 adjusted earnings of 74 cents per share beat the Zacks Consensus Estimate of 65 cents. Also, the bottom line increased 14% from the prior-year quarter. Results in the reported quarter included severance charges of $62 million (4 cents per share) related to position eliminations.

The stock rose more than 3% in early 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 and an increase in total client assets aided the results. However, higher expenses, lower rates and lower trading revenues acted as headwinds.

Net income available to common shareholders was $913 million, increasing 3% year over year.

Revenue Growth Offset by Rise in Expenses

Net revenues were $2.71 billion, up 5% year over year. The rise was supported by net interest revenues (up 7%), asset management and administration fees (up 2%) and other revenues (up 24%), partially offset by 2% fall in trading revenues. The reported figure surpassed the Zacks Consensus Estimate of $2.65 billion.

Total non-interest expenses increased 8% year over year to $1.48 billion. All expense components, except regulatory fees and assessments costs, and other costs, increased on a year-over-year basis.

Pre-tax profit margin declined to 45.6% from 47.3%.

At the end of the third quarter, Schwab’s average interest-earning assets grew 3% year over year to $265.2 billion.

Annualized return on equity as of Sep 30, 2019, came in at 20%, stable year over year.

Other Business Developments

As of Sep 30, 2019, Schwab had total client assets of $3.77 trillion (up 6% year over year). Also, net new assets — brought by new and existing clients — were $56.6 billion, up 6%.

Schwab added 363,000 new brokerage accounts in the reported quarter. As of Sep 30, 2019, the company had 12.1 million active brokerage accounts, 1.4 million banking accounts and 1.7 million corporate retirement plan participants.

Share Repurchase Update

Schwab repurchased 19.9 million shares for $770 million during the quarter. As of Sep 30, 2019, buyback authorization worth nearly $2 billion remained.

Our Take

The company’s initiatives to strengthen market share are likely to enhance its profitability over the long term, despite the expectation of near-term reduction in trading revenues. However, continuous rise in expenses (due to higher compensation costs) is expected to hurt the bottom line. Further, lower interest rates make us apprehensive about the company’s prospects.

The Charles Schwab Corporation Price, Consensus and EPS Surprise

 

The Charles Schwab Corporation Price, Consensus and EPS Surprise

The Charles Schwab Corporation price-consensus-eps-surprise-chart | The Charles Schwab Corporation Quote

Currently, Schwab carries a Zacks Rank #5 (Strong Sell).

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 ETFC, TD Ameritrade AMTD and Raymond James RJF, which are slated to announce results on Oct 17, Oct 21 and Oct 23, respectively.

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