Walter Investment Management Corp. :WAC-US: Earnings Analysis: Q3, 2016 By the Numbers : November 23, 2016

Walter Investment Management Corp. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Walter Investment Management Corp. – Hannon Armstrong Sustainable Infrastructure Capital, Inc., Nationstar Mortgage Holdings Inc., Ellington Financial LLC, PennyMac Financial Services, Inc. Class A, Walker & Dunlop, Inc. and Stonegate Mortgage Corp. (HASI-US, NSM-US, EFC-US, PFSI-US, WD-US and SGM-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 500.65 million, Net Earnings of USD -101.83 million.
  • Gross margins widened from 94.62% to 95.53% compared to the same period last year, operating (EBITDA) margins now -9.81% from -18.86%.
  • Year-on-year change in operating cash flow of -89.81% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from -24.24% to -14.29%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 500.65 482.31 463.45 504.23 507.52
Revenue Growth (%YOY) -1.35 -7.91 -16.7 -6.34 7.74
Earnings (mil) -101.83 -232.4 -172.7 -117.14 -76.93
Earnings Growth (%YOY) -32.37 -509.67 -456.96 -166.38 -8.65
Net Margin (%) -20.34 -48.18 -37.26 -23.23 -15.16
EPS -2.82 -6.49 -4.85 -3.16 -2.04
Return on Equity (%) -115.25 -179.56 -96.17 -53.55 -31.38
Return on Assets (%) -2.32 -5.18 -3.72 -2.49 -1.61

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Market Share Versus Profits

Revenues History
Earnings History

WAC-US‘s change in revenue this period compared to the same period last year of -1.35% 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 WAC-US is holding onto its market share. Also, for comparison purposes, revenues changed by 3.80% and earnings by 56.19% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year earnings decline did not come as a result of a contraction in gross margins or because of any cost control issues. Both gross margins and operating margins (EBITDA) margins actually improved over this time frame. Gross margins went from 94.62% to 95.53%, while operating margins improved from -18.86% to -9.81% over this period. For comparison, gross margins were 96.44% and EBITDA margins -29.48% in the immediate last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Cash Versus Earnings – Sustainable Performance?

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

WAC-US‘s change in operating cash flow of -89.81% 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.

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from -24.24% to -14.29%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from -25.92% to -31.60%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Walter Investment Management Corp.

Company Profile

Walter Investment Management Corp operates as a mortgage banking company, which focuses on the servicing and origination of residential loans, including reverse loans. It operates through the following business segments: Servicing, Originations, Reverse Mortgage, and Other. The Servicing segment consists of operations that perform servicing for third-party credit owners of mortgage loans as well as complementary businesses consisting of an insurance agency serving residential loan borrowers and credit owners and a collections agency that performs collections of post charge-off deficiency balances for third parties. The Originations segment originates and purchases mortgage loans through the consumer originations and consumer direct channels. The Reverse Mortgage segment focuses on the origination or purchase, securitization and servicing of reverse loans. The Other segment consists of assets and liabilities of the Non-Residual Trusts, corporate debt, and asset the firm’s management business. The company was founded in 1958 and is headquartered in Tampa, FL.

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