Union Planters Corp. is reaping the benefits of a two-year restructuring that cut costs and boosted revenues, but analysts are questioning whether the Memphis company can continue to build its earnings now that the restructuring is done.
Since early 2000 the $33 billion-asset regional banking company has closed 120 branches, or about 15% of its branch network; consolidated key systems and operations; and eliminated more than 1,000 jobs through an efficiency campaign called UPExcel.
During an investor presentation Tuesday in Memphis, Jackson W. Moore, the company's chairman, chief executive, and president, said that the campaign will add about $125 million a year to after-tax profits once its full effects are felt in mid-2003. "It has been a very significant driver of our financial results."
Investors have responded by pushing Union Planters' stock price up 30% since Jan. 1, 2000 - an increase adjusted for splits. During that period the Standard & Poor's 500 and other major stock indexes have declined.
"We think that the impact of what we've done is being seen in the market, and we think the impact of what we've done is reflected in [our financial] numbers," Mr. Moore said during the conference, sponsored by Morgan Keegan & Co., a Memphis brokerage unit of Regions Financial Corp.
However, analysts do not share his optimism. Instead, some are wondering how the company will be able to keep growing without a major improvement in the economy.
In particular, they have doubts about Union Planters' decision to report a gain in the value of mortgage-servicing rights while most banks were taking losses. It cut its mortgage-servicing impairment reserve by $12 million and reported a mortgage-servicing amortization credit of $3 million.
The unusual gain helped Union Planters' third-quarter earnings per share rise 22% from a year earlier, to 66 cents, which beat a recently lowered Wall Street consensus by 3 cents, according to Thomson First Call.
"They did not do themselves any favors with the Street, on both the buy side and the sell side, with how they recaptured the mortgage-servicing impairment allowance in a quarter when everyone else was taking charges in the tens and hundreds of millions of dollars," said Jeff Davis, an analyst at First Tennessee National Corp.'s FTN Financial Securities in Nashville.
Mr. Davis, who has a "neutral" rating on the company, had cut his third-quarter estimates just before the earnings report, saying he expected Union Planters to write down its mortgage-servicing rights by $30 million, to $40 million.
Other analysts also questioned the move. Christopher Marinac of SunTrust Robinson Humphrey said that it "overstated" earnings by about 4 cents per share. In an Oct. 18 earnings note, he cut his rating to "neutral" from "buy" over concerns about the quality of its earnings per share.
Union Planters' stock closed down 0.9% on Tuesday.
