Why Is An Earnings Beat Less Likely For BNY Mellon (BK) In Q2?

Why Is An Earnings Beat Less Likely For BNY Mellon (BK) In Q2?

The Bank of New York Mellon Corporation BK is scheduled to report second-quarter 2022 results on Jul 15, before market open. While its revenues in the to-be-reported quarter are expected to have witnessed a rise on a year-over-year basis, earnings are likely to have declined.

In the last reported quarter, the company's earnings were in line with the Zacks Consensus Estimate. Results were aided by a rise in net interest revenues (NIR). Growth in assets under management AUM was another tailwind. However, a fall in fee revenues and higher expenses were the undermining factors.

BNY Mellon has an impressive earnings surprise history. Its earnings surpassed the Zacks Consensus Estimate in three and met in one of the trailing four quarters, with a surprise of 3.7%, on average.

The Bank of New York Mellon Corporation Price and EPS Surprise


The Bank of New York Mellon Corporation price-eps-surprise | The Bank of New York Mellon Corporation Quote

The Zacks Consensus Estimate for the company's second-quarter earnings is pegged at $1.12, which has been unchanged over the past seven days. The estimate indicates a marginal fall from the year-ago quarter's reported number.

The consensus estimate for sales is pegged at $4.17 billion, implying a 5.4% rise from the prior-year quarter's reported figure.

Key Factors & Estimates for Q2

Fee Revenues: Supported by overall asset inflows in the second quarter, BNY Mellon is expected to have recorded an improvement in the total AUM balance. Thus, the related fee is likely to have increased.

The Zacks Consensus Estimate for total investment services fee (comprising more than 50% of the company's total revenues) is pegged at $2.04 billion, which indicates a rise of 2.5% from the previous quarter's reported number.

The consensus mark for financing-related fees is pegged at $47.50 million, which suggests a 5.6% rise sequentially. The consensus estimate for distribution and servicing fees is pegged at $33.43 million, indicating 11.4% growth from the previous quarter's reported figure.

The consensus estimate for foreign exchange revenues is pegged at $213 million, suggesting a rise of 2.9% sequentially. However, the consensus mark for investment and other income of $50 million suggests a sequential decline of 28.6%.

The consensus estimate for total fees and other revenues is pegged at $3.32 billion, suggesting a 2.7% rise sequentially.

Net Interest Revenues: The overall lending scenario continued to improve in the second quarter. In addition to loan growth, there was a rise in interest rates in the quarter. The Federal Reserve raised rates by 125 basis points in total in the quarter. The policy rate thus reached 1.5-1.75%, the highest level since just before the March 2020 pandemic.

Thus, despite the flattening of the yield curve, BNY Mellon's interest income is expected to have been positively impacted in the quarter, supported by loan growth and higher rates. The consensus mark for NIR for the second quarter is pegged at $749 million, indicating 7.3% sequential growth.

Expenses: Because of higher litigation and restructuring charges, BNY Mellon's expenses have been elevated over the past few years. Nevertheless, overall costs are expected to have been manageable in the quarter under review, given the elimination of unnecessary management layers.

Key Development in the Quarter

In May, Franklin Resources, which operates as Franklin Templeton, entered an agreement with BNY Mellon to acquire BNY Alcentra Group Holdings, Inc. from the latter. Closing of the deal, subject to customary closing conditions, including certain regulatory approvals, is expected early in the first quarter of 2023.

Per the deal, Franklin Templeton will pay $350 million in cash upon the deal closure and up to a further $350 million in contingent consideration, dependent on the achievement of certain performance thresholds over the next four years.

Moreover, Franklin Templeton has committed to purchase all seed capital investments from BNY Mellon related to Alcentra, which were valued at $305 million as of Mar 31, 2022. The seed capital investments will be valued at the time of close to determine the final seed capital purchase amount.

What the Zacks Model Unveils

According to our quantitative model, the chances of BNY Mellon beating the Zacks Consensus Estimate this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — which is required to increase the odds of an earnings beat. 

Earnings ESP: The Earnings ESP for BNY Mellon is -0.38%.

Zacks Rank: The company currently carries a Zacks Rank #5 (Strong Sell).

Stocks That Warrant a Look

A couple of finance stocks that you may want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases per our model, are Truist Financial TFC and Capital One Financial COF.

The Earnings ESP for Truist Financial is +1.38% and it carries a Zacks Rank #3 at present. The company is slated to report second-quarter 2022 results on Jul 19.

Capital One is scheduled to release second-quarter 2022 earnings on Jul 21. The company, which carries a Zacks Rank #3 at present, has an Earnings ESP of +1.82%.
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