Did AmSouth Bancorp. beat or miss analyst estimates when it reported its results this week?
In the immediate aftermath of its second-quarter earnings release Tuesday, the impression was that the Birmingham, Ala., company had exceeded estimates by a penny.
But on Wednesday, Jefferson Harralson, an analyst with Keefe, Bruyette & Woods Inc., questioned how AmSouth got there. According to Mr. Harralson, it would have missed by as much as a penny if it had excluded securities gains.
AmSouth said its earnings rose 8% from a year earlier, to $167 million, or 47 cents a share, a penny above the average estimate for the quarter. But 2 cents of that came from securities gains, which Mr. Harralson said is unsustainable. Accordingly, he said, AmSouth had operating earnings of 45 cents a share.
He also said he is concerned that many of the thing that have helped drive AmSouth’s earnings in recent quarters, including lower reserves, will probably disappear.
On Wednesday he downgraded the stock to “underperform,” equivalent to a sell rating, from “market perform,” or neutral. He also lowered his full-year earnings per share estimates by 7 cents for 2004, to $1.79, and by 8 cents for 2005, to $1.82.
The new estimates reflect the potential for a range of issues, including lower securities gains, Mr. Harralson wrote. In his note, he also wrote that he is concerned about further compression of the net interest margin, capital constraints on balance-sheet growth, higher provisions, and a decrease in share buybacks.
Rick Swagler, a spokesman for AmSouth, said that after taxes the securities gains had fallen 49% from a year earlier and 16.5% from the first quarter, to $8.14 million, or only a penny per share.
During the conference call, AmSouth’s management had indicated that it expected such gains to continue to drop. Mr. Swagler also pointed out that most analysts’ estimates include some securities gains.
Jacqueline Reeves of BankAtlantic Bancorp Inc.’s Ryan Beck & Co. Inc. is one such analyst. In an interview, she said AmSouth has historically had a certain level of securities gains in its results.
Ms. Reeves said she takes out a portion of the gains if they are unusually high, as they were in the second quarter last year, at $15.9 million. This quarter looked “fairly normal,” and she expects the gains to fall.
Reiterating her rating of “market perform” for the stock, Ms. Reeves increased her full-year estimates by 2 cents a share for 2004, to $1.89, and by a penny for 2005, to $2.06.
However, she said AmSouth needs to start adding more loans to its balance sheet. Its management has indicated a solid pipeline — commercial and industrial loans increased 20%, on an annual basis, while commercial real estate loans jumped 24%.
“I think it showed some pretty healthy signs, especially on their loan portfolio,” Ms. Reeves said.
AmSouth’s stock fell 2.61% Wednesday.
