Sneak Peek of RM's 4Q Results - Analyst Blog

By Zacks | January 16, 2013 AAA

Regional Management Corp. (RM) recently declared some of its preliminary financial results for the fourth quarter of 2012. The company has scheduled its fourth quarter and full year 2012 earnings release in late February 2013. Diluted earnings per share for the fourth quarter of 2012 are expected to be in the range of 50 to 55 cents, based on shares outstanding of 12.8 million. This would be lower than the Zacks Consensus Estimate of 64 cents. For full year 2012 the Zacks Consensus Estimate is currently pegged at $2.29 representing a year-over-year improvement of 3.62%.

Net income for the fourth quarter of 2012 is expected to be in the range of $6.4 to $7 million compared to $7 million in the third quarter of 2012. Net income and earnings per share of the company for the fourth-quarter 2012 were adversely affected by the combined effects of lower yield and increase in the provision for loan losses and other growth-related costs like additional marketing, overtime, and interest costs.

Regional Management expects its fourth-quarter 2012 revenue to be in the range of $37.6 to $38 million which is higher than $35.5 million, reported in the third quarter.

Finance receivables as of December 31, 2012 were approximately $437 million. The finance receivables of Regional Management showed an improvement owing to the company's overall growth. It expects to earn revenue in the future periods riding on back of the company's strong growth reported in the fourth quarter.

Regional Management estimates its fourth-quarter same-store revenue to improve in a 16% to 17% range which is lower than the third-quarter same-store revenue growth rate of 18.3%.

Total provision for loan losses for the fourth quarter of 2012 is expected to be in the range of $9 to $9.5 million, higher than $7.4 million in the prior quarter.

The company expects to incur total General & Administrative expense between $14.7 to $15 million in the fourth quarter, higher than $14.3 million in third quarter of 2012.

Regional Management excelled in its loan portfolio through all channels during the fourth quarter of 2012. It opened eight new branches during the quarter to expand its operations rapidly and could hence reap benefits from favorable market conditions. With new branches added, the tally has reached 221 branch locations.

The RMC Retail business unit has also shown consistent improvement in its results in the fourth quarter of 2012 by enhancing its product mix. The company successfully accomplished an expanded holiday live check campaign.

The company hopes to engage in expanded testing of its products. It also intends to increase its marketing network to a greater number of customers with higher credit capacity. This is in order to gain a wide customer mix thereby drawing a lump sum check with a slightly lower APR. Regional Management looks forward to this achievement by utilizing its success of the holiday live check campaign.

As the company carried out a number of live check test scenarios, it ended up with a relatively lower-than-expected yield. However, on a positive note, Regional Management expects the waning yields to compel similar future campaigns in an effort to effect better numbers.

Though management expects the company to miss expectations in the fourth quarter, the multi-channel growth and future growth prospects of the company remained strong. It has led the company going ahead with plans to set up 35 to 45 more branches in 2013.

Overall, we expect higher expenses to partially offset the rise in revenue and hence weigh on margin expansion in the fourth quarter of 2012. Regional Management currently carries a Zacks Rank #3 (Hold). World Acceptance Corporation (WRLD), a small-loan consumer finance company, which closely competes with Regional Management carries the Zacks Rank # 2 (Buy).

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