Itau Unibanco (ITUB) Reports Decent Q1 Earnings, Shares Down
Zacks Investment Research | May 03, 2017 10:13PM ET
Itau Unibanco Holding S.A. (NYSE:ITUB) posted recurring earnings of R$6.2 billion ($1.97 billion) in first-quarter 2017, up 19.2% year over year. Including non-recurring items, net income came in at R$6.1 billion ($1.94 billion), up 17.3% year over year.
Despite an increase in earnings, investors’ sentiments were down on concerns over escalating expenses which led to decline of around 1.82% on the NYSE following the earnings release.
Results reflected an increase in revenues and a solid balance-sheet position. However, higher expenses and lower managerial financial margin were headwinds.
Revenues Up, Costs Rise, Strong Capital Position
Operating revenues came in at R$27.0 billion ($8.6 billion) in the reported quarter, slightly up on a year-over-year basis.
Managerial financial margin edged down 1.7% year over year to R$17.1 billion ($5.4 billion). However, commissions and fees were up 7.0% year over year to R$7.8 billion ($2.5 billion).
Non-interest expenses came in at R$11.0 billion ($3.5 billion), slightly up on a year-over-year basis. However, expenses for provision for loan and lease losses plunged 31.1% on a year-over-year basis to R$5.4 billion ($1.7 billion).
In the quarter under review, the efficiency ratio was 44.1%, displaying an expansion of 10 basis points (bps) from the prior-year quarter. An increase in the efficiency ratio indicates decreased profitability.
The non-performing loan ratio (loan transactions more than 90 days overdue) was 3.4% in the reported quarter, contracting 10 bps year over year. Itau Unibanco’s credit portfolio, including endorsement, private securities and sureties, reached R$587.0 billion ($187.7 billion) as of Mar 31, 2017, down 7.9% year over year.
As of Mar 31, 2017, Itau Unibanco’s total assets amounted to R$1.41 trillion ($0.45 trillion), up 1.1% from the end of the year-ago quarter. Assets under administration were R$951.0 billion ($304.1 billion), up 19.7% year over year.
Annualized recurring return on average equity increased to 22.0% in the reported quarter from 19.6% in the year-earlier quarter. As of Mar 31, 2017, estimated BIS ratio was 18.1%, up 40 bps year over year.
Outlook
For 2017, the company expects loan losses and impairment in the range of R$14.5–R$17 billion. Moreover, non-interest expenses are anticipated to increase in the range of 1.5–4.5%.
In addition, the total credit portfolio is projected in the range of 0.0–4.0%, while commissions and fees are likely to climb 0.5%–4.5%. Managerial financial margin with clients is estimated in the range between -4.0% and -0.5%.
Our Viewpoint
Results of Itau Unibanco highlight a decent quarter. Furthermore, the company’s future prospects look encouraging as it remains focused on building strategies to expand inorganically. In addition, the merger with CorpBanca has fortified the company’s footprint in Latin America. Nevertheless, increasing competition, elevated expenses and stressed conditions in the Brazilian economy pose significant risks.
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