The Goldman Sachs Group, Inc. GS reported solid first-quarter 2015 earnings per share of $5.94, beating the Zacks Consensus Estimate by 42.1%. Results also compared favorably with the year-ago figure of $4.02.
The Goldman Sachs Group Inc. - Earnings Surprise | FindTheCompany
Better-than-expected results were primarily attributable to a record top-line performance. The company’s net revenue is the highest generated over the last four years. While capital balances remained strong, elevated expense level acted as the headwind.
Notably, equities client execution contributed significantly to institutional client services’ revenues in the quarter. Per the company release, “During the quarter, Equities operated in an environment generally characterized by more favorable market-making conditions, generally higher global equity prices and strong client activity levels.”
Net income applicable to common shareholders in the quarter was $2.75 billion, up 41% from $1.95 billion in the prior-year quarter.
Performance in Detail
Net revenue increased 14% year over year to $10.62 billion for the quarter. Moreover, revenues surpassed the Zacks Consensus Estimate of $9.33 billion. Results were mainly driven by higher revenues from all business segments. However, investment management revenue was relatively unchanged year over year.
Segment Revenues
The Investment Banking division generated revenues of $1.9 billion, up 7% year over year. The rise was primarily due to heightened client activity and an uptick in mergers and acquisitions, driving a 41% year-over-year rise in financial advisory revenues. Further, higher equity underwriting contributed to revenues, while decline in debt underwriting challenged the same.
Institutional Client Services recorded revenues of $5.5 billion, surging 23% year over year. Results reflected a 10% year-over-year rise in revenues in Fixed Income, Currency and Commodities Client Execution (FICC), complemented significantly by higher revenues from equities client execution. These were, however, partially offset by lower commissions and fees.
The Investing and Lending division booked revenues of $1.7 billion in the quarter, up 9% year over year. Results included net gains of $1.2 billion from investments in equities, and net gains and net interest income of $509 million from debt securities and loans.
Investment Management generated revenues of $1.6 billion, up marginally year over year. Results reflected a 16% decline in incentive fees, partially offset by increased management and other fees along with higher transaction revenues.
Goldman’s operating expenses increased 6% from the prior-year quarter to $6.7 billion. Expenses increased largely due to higher compensation and employee benefits (11% higher year over year). However, decrease in depreciation and amortization expenses (down 44% year over year) which pulled down total non-compensation expenses (down 3% year over year) partially mitigated the rise.
Evaluation of Capital
Goldman exhibited a strong capital position in the reported quarter. As of Mar 31, 2015, the company’s Common Equity Tier 1 ratio was 12.6% under the Basel III Advanced Approach, reflecting valid transitional provisions.
Return on average common shareholders’ equity, on an annualized basis, was 14.7% in the reported quarter. Goldman’s book value per share increased around 7% to $163.01. Also, tangible book value per share rose 7% to $153.79 from the prior-year period end.
Capital Deployment
During the first quarter, Goldman repurchased 6.8 million shares of its common stock at an average price per share of $185.18 and a total cost of $1.25 billion. The remaining share authorization under Goldman’s existing repurchase program stands at 18.6 million shares.
Concurrent with the earnings release, the company announced an 8.33% hike in its quarterly dividend. Goldman declared a quarterly dividend of 65 cents, payable on Jun 29, 2015 to shareholders of record on Jun 1.
In Conclusion
We expect Goldman to benefit from its well-managed global franchise, strong capital base and recent investments in the near future. Also, we believe the company is well positioned to combat operating challenges in the upcoming quarters.
Further, with the recent hike in its quarterly dividend and steady share repurchase activities. Goldman continues to create shareholder value, making it an attractive pick for yield-seeking investors.
Though there are concerns related to the impact of legal and regulatory issues and its global exposure, equity-centric activities in the U.S. are expected to support Goldman’s results in the upcoming quarters with continued recovery in the capital markets.
This company currently carries a Zacks Rank #3 (Hold).
Performance of Other Major Banks
On Apr 14 financial bigwigs, JPMorgan Chase & Co. JPM and Wells Fargo & Company’s WFC kick-started the first-quarter earnings season, managing to beat the respective Zacks Consensus Estimate.
JPMorgan turned things in its favor with earnings of $1.45 per share, beating the Zacks Consensus Estimate of $1.39. Wells Fargo came up with earnings per share of $1.04, delivering a 6.1% positive earnings surprise.
On the other hand, Bank of America Corp.’s BAC first-quarter earnings of 27 cents per share lagged the Zacks Consensus Estimate of 29 cents. However, after considering certain non-recurring items, earnings per share were 36 cents.
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