Navient (NAVI) Guides Q2 EPS Below Expectations, Cuts FY15 EPS Outlook

Navient (NASDAQ: NAVI) announced that it expects second-quarter 2015 core earnings of approximately $0.40 diluted earnings per share, or GAAP earnings of approximately $0.47 diluted earnings per share. In addition, the company revised its guidance for full-year 2015 core earnings to approximately $1.85 diluted earnings per share.

*** The Street sees Q2 EPS of $0.55 and FY15 EPS of $2.20.

Expected second-quarter results and the revised core earnings guidance are driven primarily by the following factors:

• As a result of aggressive market pricing for private education loan portfolios, the company has removed from 2015 guidance additional private loan acquisitions. The company also has reduced its forecast for net interest income as a result of increased cost of funds. As a result, for the second half of 2015, the net interest margin is projected to range between 3.83 percent and 3.85 percent for private education loans and between 0.81 percent and 0.85 percent for FFELP loans. The company expects second quarter net interest margin to be 3.55 percent for private education loans and 0.81 percent for FFELP loans. The private education loan net interest margin in the second quarter was also impacted by reduced interest income related to the factor immediately below.
• While the majority of the private education loan portfolio continues to perform as expected and is experiencing positive credit trends, a segment of higher risk private education loan borrowers who returned to school during the recession deferred repayment on their existing loans and exited deferment status in 2014. These loans are experiencing unfavorable credit trends compared to loans that exited deferment in prior years. In addition, loan balances exiting deferment increased to $2.5 billion in 2014, as compared to $1.8 billion in 2013 and $2.1 billion in 2012. For 2015, these figures are projected to decline to $1.7 billion. As a result, the company increased its provision for these loans and now projects a private education loan loss provision of $191 million for the quarter and $575 to $600 million for the year. As of June 30, 2015, the company's private education loan portfolio totaled $28.1 billion.
• As a result of the recent performance in its long-term recovery rate on defaulted loans, the company changed its recovery rate assumption on charged-off loans to 21 percent. The company reduced the balance of the receivable for partially charged-off loans by $330 million to reflect this update. Because this item was previously reserved for, this change did not impact the loan loss provision.

During the quarter, the company launched a restructuring initiative to simplify and streamline its management structure. Approximately $29 million of restructuring expenses in the second quarter are included in GAAP results but excluded from core earnings.

"The changes to our guidance reflect marketplace conditions for private loan portfolio purchases and cost of funds, as well as a conservative assessment of default trends for a small and declining segment of our private education loan portfolio," said Jack Remondi, president and CEO, Navient. "While we have removed private education loan acquisitions from our guidance, we continue to believe that there will be opportunities for Navient to acquire loans in 2015 and beyond. Our restructuring initiative reflects changes post-separation to improve the operating efficiency and effectiveness of our organization, producing positive results for our customers and shareholders. Furthermore, we continue to see positive credit trends for new college graduates."

The company will release its 2015 second-quarter results after market close on Tuesday, July 21, 2015. In addition, the company will host a conference call for shareholders at 8 a.m. EDT on Wednesday, July 22, 2015. To participate, join a live audio webcast at navient.com/investors or call 855-838-4156 (USA and Canada) or 267-751-3600 (international) with access code 77164535 starting at 7:45 a.m. EDT.

Supplemental financial information and presentation slides used during the company's investor conference call will be available on the company's website no later than the call's start time.

A replay of the webcast will be available via the company's website approximately two hours after the call's conclusion. A telephone replay may be accessed approximately two hours after the call through August 5, 2015, at 855-859-2056 (USA and Canada) or 404-537-3406 (international) with access code 77164535.

You May Also Be Interested In

• Walmart (WMT) PT Lowered to $130 at UBS on Investment Narrative's Competing Dynamics
• Breeze Acquisition Corp. II gets Nasdaq notice for late 10-Q filings
• Is the global equity rally broadening? UBS weighs in