Earnings Recap Cheat Sheet: Schwab (SCHW) Gaps Up On EPS Beat

Earnings: Q2 profits of $0.17 vs. $0.15 consensus and $0.18 in Q3 last year.

Revenue: Relatively flat YOY at $1.08 billion vs. $1.06 billion consensus.

Chairman Charles Schwab noted that “cost cuts, stabilizing interest rates and an improving U.S. economy should help results improve from second-quarter levels.”

During the conference call, CFO Joe Martinetto pronounced that “this [was] the strongest second quarter in the history of the company for trading activity.”

Comment: Shares of Schwab (NYSE: SCHW) popped Friday following the company’s AM earnings release, hitting highs of $15.72 before settling up 4.05% at $15.14.

Excluding outflows related to one mutual fund clearing client, SCHW added $14 billion in net new assets in Q2, lower than the $17.3 billion the company added for the same Q last year.  However, Martinetto noted that Q2 tends to be one of the weaker Qs for Schwab due to the effects of tax season.  He went on to say that Q2 is “generally a soft quarter…with one soft month out of the three, it tends to be a weak quarter for asset acquisition.”

Due to the uncertain interest-rate environment, Martinetto said Schwab is still likely to “fall below [Schwab’s] long-term trends of 8% to 10% in new client acquisition annually.”  They hope to maintain a minimum 6%-7% clip.  Schwab reported $1.36 trillion in total client assets, up 11% from $1.22 trillion a year ago.

Fee waivers related to money market assets finally began to decline, coming in at $113 million for Q2.  With rates so low, fees had to be waived to avoid forcing investors to take negative returns on some risk-free assets.

As you can see quite plainly on the chart below, shares had been engaged in quite a free-fall since early May.  The decline pushed shares down over 30% to a low of $13.94 on July 1 before gaining some momentum during the recent rally in the broad market.  Friday’s gap up yielded the 2nd highest volume day of the year for SCHW and one would have to imagine that shares would have been up significantly more had the market not sold off so severely.  Though macro concerns continue to hang over the market, likely capping the upside to some extent, a beat up stock like SCHW may be a good play off such a solid Q.

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Disclosure: No holdings in SCHW.