TD disappoints the most of all the banks after Q4

TD Bank Group’s (TSX—TD; NYSE–TD) fourth-quarter results and outlook were greeted with horror by investors. They promptly punished the bank’s stock by selling it and causing the shares to fall five per cent on the day the results were released. Adjusted earnings per share, or EPS, for the quarter were $0.98, $0.07 below the consensus estimate, and up just 3.2 per cent from $0.95 in last year’s fourth quarter.

Adjusted net income rose just 2.1 per cent to $1.9 billion from $1.8 billion. The bank said its performances from all business segments were solid, but noted that expenses partially offset profit increases.

The Canadian retail business did okay. Adjusted earnings were $1.4 billion, up seven per cent. Higher earnings were driven by good growth in loans, deposits, wealth assets under management and the addition of Aeroplan.

At the U.S. retail business, however, adjusted profits rose just 0.7 per cent to US$462 million. The relative flatness of this performance was primarily due to a higher tax rate, which helped offset lower provisions for credit losses.

Wholesale banking, meanwhile, did very well, with net income rising 31 per cent to $160 million.

Despite the disappointing fourth quarter, TD’s financial results for fiscal 2014 still look good. For the year ended Oct. 31, 2014, TD made $8.2 billion (adjusted) or $4.27 a diluted share, up 13.9 per cent from $7.2 billion, or $3.71 a share, in fiscal 2013.

Looking ahead to 2015, TD expects its operating environment to be more challenging. Headwinds include heavy competition, slower revenue growth coupled with increasing expenses and higher taxes. But better economic conditions, particularly in the U.S., should help keep profits rising.

Hence, we feel the bank should be able to increase profits at a moderate rate in the near term, even if it fails to meet its medium-term EPS growth target of seven to 10 per cent annually. TD Bank remains a buy for growth and income.

 

Money Reporter, MPL Communications Inc.
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