Headline: Bread Financial Unveils Q3 2024 Results, Maintains Cautious Outlook
Bread Financial (NYSE: BFH), a leading financial service provider, announced its third-quarter earnings for 2024 on October 24. CEO Ralph Andretta and CFO Perry Beberman discussed the company's performance and future outlook. Despite challenges from economic conditions and recent hurricanes, the company remains committed to supporting affected communities and views the future with cautious optimism. Bread Financial reported an adjusted net income of $93 million and $1.83 adjusted diluted earnings per share. The tangible book value per share increased by 12% year-over-year.
Key highlights include a $93 million adjusted net income and adjusted diluted earnings per share of $1.83. Strategic repurchase of convertible notes enhanced balance sheet strength. While total credit sales showed a slight decline, average loans saw modest growth. Revenue decreased by 5% largely due to reduced fees. The company maintains a strong capital position with a 13.3% CET1 ratio. There is an expectation of gradual economic recovery, with close monitoring of regulatory changes. Loan yield declined, but net interest margin showed sequential improvement. Delinquency rates rose slightly, with the full-year net loss rate expected at 8.3%. Projections for 2024 include a low single-digit decline in average loans and total revenue. Adjusted expenses are expected to decrease compared to 2023. The company focuses on achieving financial targets and responsible growth.
Company Outlook: Bread Financial anticipates a gradual economic recovery and plans to mitigate the impact of regulatory changes. The company expects a low single-digit decline in average loans for 2024. Excluding portfolio sales, total revenue is anticipated to decrease in low to mid-single digits. Adjusted expenses are forecasted to decline by mid-single digits compared to 2023. The normalized effective tax rate is expected to be between 25% and 26% for the year. The company aims to maintain a strong CET1 ratio and remains committed to responsible growth and shareholder value.
Negative Highlights: Total credit sales declined by 3% year-over-year. Revenue fell by 5%, primarily due to lower late fees and merchant discount fees. Earnings before tax and provisions dropped by $120 million, representing a 23% decrease. Lending yield fell by 120 basis points from the previous year.
Positive Highlights: Tangible book value per share increased by 12% year-over-year. Direct-to-consumer deposits rose, making up 41% of average funding. The company extended a $700 million unsecured revolving credit facility under better terms. Capital strategy increased the core capital ratio (CET1) by 40 basis points to 13.3%. A diversified product suite with over 100 brand partners.
Drawbacks: Total non-interest expenses increased by $72 million year-over-year, primarily due to the impact of repurchased convertible notes. Excluding gains from portfolio sales and the impact of convertible notes, total expenses decreased by 5%.
Q&A Highlights: Discussions with brand partners and measures taken to adapt to regulatory changes included APR increases and paper statement fees. The company expects seasonal increase in charge-off rates in the fourth quarter but benefits by $10 million from actions supporting hurricane-affected customers. Concerns regarding inflation and its effects on low- to mid-income consumers were discussed, though some economic indicators show improvement. The company has a strong pipeline with new partnerships such as Saks and Hard Rock, securing 90% of its book through 2025.
Bread Financial's earnings call showcased a company navigating strategic actions and cautious optimism amid a complex economic environment. Despite challenges such as declining revenue and credit sales and rising delinquency rates, the company remains committed to maintaining a strong balance sheet and focusing on responsible growth. With a diversified product suite and a robust capital position, Bread Financial appears prepared to tackle future challenges while supporting its community and stakeholders.
InvestingPro Insights: Bread Financial's recent earnings report aligns with several key metrics and projections from InvestingPro. The company's financial standing reflects both challenges and strengths investors should consider. According to InvestingPro, Bread Financial has a market capitalization of $2.49 billion and a price-to-earnings (P/E) ratio of 5.14, highlighting a potential undervaluation of the stock relative to its earnings, which may appeal to value investors. The company's trailing twelve-month revenue was $2.58 billion as of the second quarter of 2024, with a 5.36% revenue increase in the latest quarter. This modest growth is a positive sign against the challenging economic backdrop mentioned in the earnings call.
An InvestingPro Insight highlights that Bread Financial has maintained dividend payments for nine consecutive years, aligning with its commitment to shareholder value mentioned in the outlook. The current dividend yield is 1.68%, offering investors a steady income stream. Despite challenges, InvestingPro data indicates a strong 80.33% one-year price total return, signaling significant market confidence in the company’s performance and strategy. This impressive return supports the InvestingPro Insight highlighting high returns over the past year.
It's important to note that InvestingPro identified 10 additional insights for Bread Financial, which could provide further perspective for investors looking to analyze the company's prospects more deeply. The InvestingPro Fair Value estimate for Bread Financial is set at $60.19, indicating potential upside from current price levels. This valuation, combined with the strategic initiatives and cautious optimism expressed in the earnings call, may present a compelling case for investors evaluating Bread Financial's stock.