TD Ameritrade Earnings Enjoy a Trump Bump

By Jordan Wathen Markets Fool.com

Image source: TD Ameritrade.

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After hitting the ballot box, TD Ameritrade (NASDAQ: AMTD) customers logged online to start trading. The company reported that earnings rose 2% in the fiscal first quarter of 2017, helped by an increase in client assets and trading volume following the 2016 election results.

TD Ameritrade's first fiscal quarter by the numbers

Metric/Quarter

Q1 2017

Q1 2016

Change YOY

Client assets

$797 billion

$695 billion

15%

Trades per day

487,000

438,000

11%

Net income

$216 million

$212 million

2%

Diluted earnings per share

$0.41

$0.39

5%

Source: Company investor relations.

What happened this quarter

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Don't let single-digit earnings growth take away from all the moving parts that flow into TD Ameritrade's financial statements. Here's what the company's investors should know about its most recent quarter.

  • The election was a dividing line for trading activity. The company reported that daily average revenue trades (DARTs) jumped to 514,000 in the days after the election, up from 451,000 before. The results marked the best-ever December quarter for trading volume for TD Ameritrade, and its third best overall.
  • Transaction-based revenue (commissions) rose by 8% compared to the year-ago period. Despite 11% growth in fee-based balances, fee-based revenue grew just 4% compared to the same period last year, the result of a shift toward low-fee products.
  • The company's quarterly results were mostly "clean," free of significant Scottrade-related expenses, which conference-call commentary pinned at a mere $3 million during the quarter. The broker's Chief Financial Officer, Steve Boyle, said that he expects less than $10 million in additional merger expenses "before some of the big numbers start coming in when we actually close the deal."
  • Thanks to higher customer balances, rate-sensitive assets reached a new record of $125 billion, up from $119 billion last quarter and $110 billion last year. The company estimates that a 0.25 percentage-point increase in rates would add $0.08 to $0.10 to annual earnings per share.

Looking ahead

A post-election rise in trading volume continued into January. TD Ameritrade clients were averaging about 508,000 trades per day, which the company attributes to post-election "re-engagement." To put that number in perspective, TD Ameritrade reported 509,000 daily average trades in the first calendar quarter of 2016, a period in which the S&P 500dove by 10% by mid-February before ending the quarter with a small gain. In other words, trading volume tends to increase with volatility. In 2017, trading volumes are higher despite relative calmness in the markets.

The company wasn't ready to use its fast start as a reason to raise its guidance for the full year. TD Ameritrade previously guided for earnings per share of $1.50 to $1.80 in fiscal 2017. So far, trading volumes and interest rates are trending higher than the assumptions that underlie its guidance. Ultimately, though, the performance for the remainder of the year largely rests on how its merger with Scottrade unfolds.

On its conference call, the company's CEO, Tim Hockey, said, "the big variables obviously are the synergies," suggesting that its ability to cut costs from the combined company would overshadow just about everything else.

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Jordan Wathen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends TD Ameritrade. The Motley Fool has a disclosure policy.