Synchrony Financial Earnings Analysis: Q2 2016 By The Numbers

| About: Synchrony Financial (SYF)

Synchrony Financial (NYSE:SYF) reports financial results for the quarter ended June 30, 2016.

We analyze the earnings along side the following peers of Synchrony Financial - Visa Inc. (NYSE:V) and MasterCard Incorporated (NYSE:MA) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 2934 million, Net Earnings of USD 489 million.
  • Gross margins narrowed from 92.90% to 92.40% compared to the same period last year, operating (EBITDA) margins now 27.78% from 33.82%.
  • Year-on-year change in operating cash flow of 12.11% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-06-30 2015-09-30 2015-12-31 2016-03-31 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 2676 2753 2862 2942 2934
Revenue Growth (%YOY) -11.92 -14.48 -16.36 13.55 9.64
Earnings (mil) 541 574 547 582 489
Earnings Growth (%YOY) 14.62 4.74 3.01 5.43 -9.61
Net Margin (%) 20.22 20.85 19.11 19.78 16.67
EPS 0.65 0.69 0.65 0.7 0.58
Return on Equity (%) 19.14 19.35 17.67 18.04 14.53
Return on Assets (%) 2.92 2.96 2.68 2.81 2.38

Market Share Versus Profits


Revenues History

Earnings History

SYF's change in revenue this period compared to the same period last year of 9.64% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that SYF is holding onto its market share. Also, for comparison purposes, revenues changed by -0.27% and earnings by -15.98% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Earnings Growth Analysis

The company's year-on-year decline in earnings was influenced by a weakening in gross margins from 92.90% to 92.40%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 33.82% to 27.78% in this time frame. For comparison, gross margins were 92.69% and EBITDA margins were 33.00% in the previous period.

Gross Margin Versus EBITDA Margin

Cash Versus Earnings - Sustainable Performance?

SYF's change in operating cash flow of 12.11% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Margins

The company's decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 32.17% to 26.28%, and (2) one-time items that contributed to a decrease in pretax margins from 32.17% to 26.28%

EBIT Margin Versus PreTax Margin

EBIT Margin History

PreTax Margin History

Company Profile

Synchrony Financial operates as a holding company, which engages in the provision of consumer financial services. It operates through the following platforms: Retail Card, Payment Solutions, and CareCredit. The Retail Card platform is a provider of private label credit cards, and also provides Dual Cards and small-and medium-sized business credit products. The Payment Solutions platform is a provider of promotional financing for major consumer purchases, offering private label credit cards and installment loans. The CareCredit platform is a provider of promotional financing to consumers for elective healthcare procedures or services, such as dental, veterinary, cosmetic, vision and audiology. The company was founded on September 12, 2003 and is headquartered in Stamford, CT.

Disclosure: CapitalCube does not own any shares in the stocks mentioned and focuses solely on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally.

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Tagged: , Credit Services, Earnings
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