Synchrony Financial (NYSE:SYF) reports financial results for the quarter ended June 30, 2016.
- 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:
|Relevant Numbers (Quarterly)|
|Revenue Growth (%YOY)||-11.92||-14.48||-16.36||13.55||9.64|
|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|
|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
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.
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.
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.
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%
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.
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