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Dismal Trading Activities to Mar Citigroup's (C) Q2 Earnings

Citigroup C is slated to report second-quarter 2019 earnings on Jul 15, before the opening bell. Results are likely to be affected by the challenging trading environment, slowdown in corporate lending and other lingering economic woes.

Several uncertainties, including trade war concerns, the Federal Reserve’s accommodative stance on rates and other geopolitical matters likely resulted in a sluggish environment for trading activities.

At an industry conference in New York, Mark Mason, Citigroup’s chief financial officer, stated that fixed-income and equities trading revenues will likely fall in the “mid-single-digit range” on a year-over-year basis.

Further, the company expects investment banking fees to decline in the mid-teens range. However, Mason also said that performance will “likely better than what we are seeing in the industry overall on the investment banking side.”

Other Factors to Influence Q2 Results

Consumer Banking Revenues to Witness Growth: In consumer banking, the company expects to see continued strength in Mexico and Asia, lending support to revenues. Further, U.S. Branded Cards are likely to witness revenue growth in North America.

Also, for 2019, management pointed other revenue tailwinds, including the absence of the FDIC surcharge, and a smaller expected drag from the winding down of legacy assets in Corp/Other. The to-be-reported quarter results should reflect these benefits.

Dismal Investment Banking Performance: Slowdown in Investment banking performance was witnessed in the quarter on uncertainties related to trade conflicts, Brexit and expectations of the Fed’s rate cut announcement. Thus, equity underwriting and debt origination fees are projected to decline slightly. Moreover, global M&A deal value and volume witnessed a year-over-year decline, thereby hurting advisory fees.

Controlled Costs: Citigroup accelerated some of its cost-cut plans by undergoing restructuring and improvements in its internal processes. Notably, management estimates expenses in the second quarter to be roughly flat on a year-over-year basis.

Net Interest Income Growth to Remain Soft: Flattish yield curve during the second quarter might negatively impact banks’ net interest margin. Also, per the Fed’s latest data, the overall lending scenario, particularly corporate lending has been disappointing. This will have an impact on interest income.

Management expects net interest revenues to decline sequentially during the second quarter.

Here is what our quantitative model predicts:

According to our model, chances of Citigroup beating the Zacks Consensus Estimate in the second quarter 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 higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Citigroup is -1.15%.

Zacks Rank: Citigroup currently carries a Zacks Rank #4 (Sell).

However, the Zacks Consensus Estimate for earnings of $1.80 suggests a 11% rise from the year-ago reported figure. Also, the consensus estimate for sales of $18.5 billion indicates slight growth.

Citigroup Inc. Price and EPS Surprise

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Comerica Incorporated CMA is scheduled to release results on Jul 17. It has an Earnings ESP of +0.66% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

M&T Bank Corporation MTB is scheduled to release results on Jul 18. The company, which carries a Zacks Rank of 3, has an Earnings ESP of +0.29%.

Earnings ESP for The PNC Financial Services Group PNC is +1.59% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 17.

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