Encore Capital Group ECPG reported fourth-quarter 2023 adjusted earnings per share (EPS) of $1.25, which beat the Zacks Consensus Estimate by 2.5%. The bottom line reported a significant improvement from a loss of $3.11 per share in the year-ago quarter.
ECPG's revenues climbed 18.5% year over year to $277.4 million. However, the top line missed the consensus mark by 16.1%.
The strong fourth-quarter earnings benefited from improving portfolio supply in the United States and rising collections. Continued growth in lending coupled with higher delinquencies and charge-offs supported the company’s record supply of non-performing loans in the quarter. However, slow growth in the U.K. and European markets partially offset the results. The company faces challenges from significantly high operating expenses, which may have worried the investors. The stock lost 7.2% on Feb 23, 2024.
Encore Capital Group Inc Price, Consensus and EPS Surprise
Encore Capital Group Inc Price, Consensus and EPS Surprise
Encore Capital Group Inc price-consensus-eps-surprise-chart | Encore Capital Group Inc Quote
Operational Update
Total debt purchasing revenue improved 21% year over year in the quarter under review. Servicing revenues deteriorated 14.6% year over year in the fourth quarter of 2023.
Total operating expenses of $494.6 million escalated more than one-fold year over year due to increased salaries and employee benefits, cost of legal collections, other operating expenses and collection agency commissions. Cash efficiency margin (cash receipts minus operating expenses minus impairment charges divided by cash receipts) deteriorated 230 basis points (bps) year over year to 51.2% in the fourth quarter.
Interest expenses increased 28.8% year over year to $54.5 million in the quarter under review. Encore Capital’s net loss of $270.8 million deteriorated nearly three-fold year over year.
Midland Credit Management’s portfolio purchases were $208.5 million, which rose 23.4% year over year in the fourth quarter of 2023. Cabot’s portfolio purchases improved 48.9% year over year in the fourth quarter.
Full Year Update
Total revenues declined 12.6% year over year to $1.2 billion in 2023. Total operating expenses increased 28.9% year over year in 2023.
Diluted EPS deteriorated to negative $8.72 against earnings of $7.46 in 2022.
MCM’s and Cabot’s total collections deteriorated 3% and 1.7%, respectively, in 2023.
Financial Position (as of Dec 31, 2023)
Encore Capital exited the fourth quarter with total assets of $4.6 billion, higher than $4.5 billion at 2022-end. Cash and cash equivalents amounted to $158.4 million in the fourth quarter, higher than $143.9 million at 2022-end.
Borrowings increased from $2.9 billion at 2022-end to $3.3 billion. Total liabilities of $3.7 billion at the fourth-quarter end were higher than $3.3 billion at 2022-end. Total equity declined from $1.2 billion at 2022-end to $936.5 million.
Net cash provided by operating activities declined 27.4% year over year in 2023.
2024 Guidance
Management expects portfolio purchasing to surpass the 2023 figure of $1.1 billion in 2024. It expects collections to grow by approximately 8% to $2 billion in 2024.
Interest expenses are expected to be $235 million for 2024. Effective tax rate is expected to be in the mid-20s in 2024.
The company expects collections efficiency margin to improve over the 2023 level.
Zacks Rank & Key Picks
Encore Capital currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Players
Of the finance sector players that have reported fourth-quarter 2023 results so far, the bottom-line results of RLI Corp. RLI, RenaissanceRe Holdings Ltd. RNR and Kinsale Capital Group, Inc. KNSL beat their respective Zacks Consensus Estimate.
RLI reported fourth-quarter 2023 operating earnings of $1.54 per share, beating the Zacks Consensus Estimate by 6.9%. The bottom line improved 0.6% from the year-ago quarter. Operating revenues for the reported quarter were $378.4 million, up 15% year over year. The top line, however, missed the consensus estimate by 2%.
Gross premiums written increased 13% year over year to $434.4 million. Net investment income of RLI increased 14.4% year over year to $32.5 million. The investment portfolio’s total return was 6.4%. Underwriting income of $59.8 million increased 10.9%. The combined ratio deteriorated 60 bps year over year to 82.7%.
RenaissanceRe’s fourth-quarter 2023 operating income of $11.77 per share beat the Zacks Consensus Estimate by 44.8%. The bottom line increased 60.6% year over year. Total operating revenues increased 42.5% year over year to $2.6 billion in the fourth quarter. The top line outpaced the consensus mark by 19.6%.
RNR’s net premiums earned improved 38.5% year over year to $2.2 billion. The net investment income amounted to $377 million, which increased 11.6% year over year in the quarter under review. It reported an underwriting income of $541 million, which surged 71% year over year. The combined ratio improved 450 bps year over year to 76% in the fourth quarter.
Kinsale Capital delivered fourth-quarter 2023 net operating earnings of $3.87 per share, which outpaced the Zacks Consensus Estimate by 12.5%. The bottom line increased 48.8% year over year. Operating revenues jumped 41.5% year over year to about $351.2 million. Revenues beat the consensus estimate by 3.8%. Gross written premiums of $395.2 million rose 33.8% year over year.
Net written premiums of KNSL climbed 26.5% year over year to $306.3 million. Its underwriting income was $84.8 million, which grew 42.6% year over year. The combined ratio improved 100 bps to 72.1% in the quarter under review. While the expense ratio improved 190 bps to 19.9% in the quarter, the loss ratio deteriorated 90 bps to 52.2%.
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