Zacks Bull and Bear of the Day Highlights: Tractor Supply, YRC Worldwide, Citigroup, JPMorgan Chase & Company and Bank of America Corporation
CHICAGO, April 19, 2011 /PRNewswire/ -- Zacks Equity Research highlights Tractor Supply Co. (Nasdaq: TSCO) as the Bull of the Day and YRC Worldwide Inc. (Nasdaq: YRCW) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Citigroup Inc. (NYSE: C), JPMorgan Chase & Company (NYSE: JPM) and Bank of America Corporation (NYSE: BAC).
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On the back of strong same-store sales, improved merchandise mix, prudent inventory management and effective cost control, Tractor Supply Co. (Nasdaq: TSCO) posted better-than-expected fourth-quarter 2010 results. The quarterly earnings beat the Zacks Consensus Estimate of $0.62. Furthermore, margins improved due to portfolio expansion of private label brands and focus on direct sourcing of merchandise.
The company has set a long-term target of generating 25% of sales from private label brands and 13% from strategic direct sourcing. Tractor is well positioned to capitalize on positive long-term trends. The company is expecting sales in the range of $4.0 billion to $4.07 billion in fiscal 2011.
Moreover, Tractor Supply's nearly debt-free balance sheet augurs well for future operating performance. Currently we maintain our Outperform recommendation on the stock.
Struggling trucking company YRC Worldwide Inc. (Nasdaq: YRCW) continues to suffer from one setback after another. In its annual report, management declared that it missed a major restructuring milestone in the first week of March 2011.
This may prompt the company's lenders to declare YRC Worldwide as a defaulter in its credit agreements. If this actually happens, the company has to seek protection under the bankruptcy law. During the last two and half years, YRC Worldwide is reeling under possible bankruptcy due to a significant fall in freight volume coupled with its highly leveraged balance sheet.
Although the trucking industry is recovering from recession, YRC Worldwide fails to cope with this current recovery. The company's viability depends on its ability to become profitable but unfortunately, we do not expect the company to reach that stage anytime soon. We are downgrading our recommendation to Underperform.
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Citi Scrapes Through, Misses Revs
Citigroup Inc. (NYSE: C) reported first quarter 2011 earnings of 10 cents per share, a penny ahead of the Zacks Consensus Estimate. The result also improved from the prior quarter earnings of 4 cents but fell short 14 cents earned in the year-ago quarter.
The slightly better-than-expected result was driven by a fall in provisions for credit losses as well as benefits and claims. Yet the top-line headwind at Citigroup continued, with revenue dropping from the prior-year period and falling behind the Zacks Consensus Estimate. Expenses also increased year over year.
Citigroup reported net income of $3.0 billion, which more than doubled from $1.3 billion in the prior quarter. However, net income came in below the prior-year quarter's income of $4.4 billion.
Revenues came in at $19.7 billion, down 22% year over year. The revenue figure also fell short of the Zacks Consensus Estimate of $20.8 billion. The year-over-year decrease resulted from a decline in both interest and non-interest revenues.
However, total provisions for credit losses and for benefits and claims at Citigroup plunged 63% year over year to $3.2 billion. Net release of allowance for loan losses and unfunded lending commitments was $3.3 billion, compared to $53 million in the prior-year quarter.
Behind the Headline Numbers
Citigroup's net interest revenues were $12.2 billion, down 16% from the prior-year period. The decrease stemmed from a fall in loan balances in the Local Consumer Lending division. Moreover, a $245 million pre-tax charge to increase reserves related to customer refunds in Japan Consumer Finance were also included in the net interest revenue figure.
Net interest margin fell 6 basis points sequentially and 43 basis points year over year to 2.91% as loan balances and yields declined and for a higher reserve build related to Japan Consumer Finance.
Citigroup's non-interest revenues fell 31% year over year to $7.5 billion, primarily due to lower Securities and Banking division's revenues, negative Credit Value Adjustment (CVA), as well as for net charge resulting from the asset transfer in Special Asset Pool.
Expenses at Citigroup ascended 7% year over year to $12.3 billion. The uptick was due to higher legal and related costs, foreign exchange impact and continued investment spending as well as increased business volumes. This increase was partially offset by a decline in expenses at Citi Holdings as well as productivity savings across the firm.
Credit Quality
Citigroup's credit quality metrics improved in the quarter. Non-accrual loans of $14.8 billion decreased 48% from the prior year quarter, primarily due to the recapitalization of Maltby Acquisitions Limited, the holding company that controls EMI Group Ltd., during the first quarter 2011.
Citigroup's total allowance for loan losses was $36.6 billion at quarter-end, or 5.79% of total loans, down from $48.7 billion, or 6.80%, in the prior year period. Asset sales, lower non-accrual loans, and overall improvement in credit quality in Citigroup's loan portfolio drove the improvement.
Capital Ratios
Citigroup continued to improve its capital strength, with Tier 1 Capital ratio and Tier 1 Common ratio improving to 13.3% and 11.3% from 12.9% and 10.7%, respectively. Book Value per share moved up to $5.85 from $5.61 in the prior quarter and $5.28 in the year ago quarter. Tangible Book Value per share increased to $4.69 from $4.45 in the prior quarter and $4.09 in the year ago quarter.
At quarter end, Citigroup's end of period assets were $1.95 trillion, down 3% year over year while deposits were $866 billion, up 5% year over year, driven by a 28% increase in non-interest bearing deposits.
Winding Down of Citi Holdings
Citi Holdings' assets declined 33% year over year to $337 billion at the end of first quarter 2011. Its assets stand at approximately 17% of total Citigroup assets at the end of the first quarter 2011.
Competitor's Performance
Similar to Citigroup, JPMorgan Chase & Company (NYSE: JPM) reported results substantially ahead of the Zacks Consensus Estimate last Wednesday, on the back of a significant slowdown in provision for credit losses. While Bank of America Corporation's (NYSE: BAC) results disappointed us, the company benefited from credit quality improvement. We believe this trend of lower credit costs will continue in the first quarter results.
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