PRA Group (PRAA -5.62%) has worked hard to try to grow its debt-collection business, and a prosperous U.S. economy has made that effort tougher than one might think. Yet even when activity levels pick up, that doesn't automatically mean PRA Group sees a positive impact on its financial statements.
Coming into Tuesday's second-quarter financial report, PRA Group investors were ready for falling sales and profits from the debt collection specialist. Yet PRA Group's results were a bit weaker even than those expectations, and the company's solid performance in finding opportunities for future growth weren't able to produce immediate results. Let's look more closely at PRA Group and what its latest report says about what's coming down the road.
Image source: PRA Group.
PRA Group deals with struggles
PRA Group's second-quarter results showed some of the difficulties the debt collector has faced lately. Revenue was lower by 12% to $200.3 million, accelerating from its past pace of sales declines and coming in weaker than the 8% drop investors were expecting. Net income of $11.7 million was down by roughly two-thirds from year-ago levels, and the resulting earnings of $0.25 per share was only half of what the consensus forecast was among those following the stock.
Looking more closely at PRA Group's numbers, the debt collector had a number of mixed signs in its financial results. Cash collections overall were down 3%, with gains in the core Americas division unable to offset big drops in insolvency-related activity domestically. Europe was mostly flat from year-earlier levels, weighed down in part by adverse currency impacts.
PRA Group still has plenty of opportunities for future business. Estimates put remaining collections at $5.3 billion, roughly in line with the prior-year quarter and up more than $180 million from the first quarter of 2017. Spending on portfolio acquisitions showed no signs of slowing down at PRA Group, with expenditures rising above $295 million, up nearly a fifth from year-ago levels and representing even bigger gains from more recent quarters. Among PRA Group's highlights, the company has hired 900 new U.S. collectors over the past 12 months, with 250 coming on board just in the second quarter. That should put the debt collector in even better position to handle new business.
Can PRA Group keep climbing?
CEO Kevin Stevenson tried to look at ways that PRA Group can keep succeeding. "We continue to be excited about volumes," Stevenson said, "and the significant level of investment in both core and insolvency in the United States." The CEO also noted that it wants to help both debtors and creditors by facilitating repayment and resolving debt in a satisfactory manner.
PRA Group intends to make some smart strategic moves to support its business. The company is prepared to open new call centers in the U.S. in order to handle higher demand and provide better service both to the people from whom PRA Group wants to collect and the lenders that are seeking repayment. PRA Group also expanded its credit facility in North America and issued new convertible senior notes to ensure that it has the liquidity necessary to make future purchases of promising assets.
PRA Group investors weren't inclined to react immediately to the report, and the stock didn't have any substantial trading activity in the after-hours session following the announcement. Depending on what happens with the global economy, PRA Group might find itself with greater opportunities to find promising debt collection assets in the future, but it will still have to be prudent about making sure it is careful about finding the highest-quality collection opportunities rather than compromising its business in order to stretch for growth.
