Bread Financial Holdings, Inc. (BFH) Bundle
Understanding Bread Financial Holdings, Inc. (BFH) Revenue Streams
Understanding Bread Financial Holdings, Inc.’s Revenue Streams
The primary revenue sources for Bread Financial Holdings, Inc. include interest income from credit card loans and other financial products, fees from services, and gains from portfolio sales. The company generates significant revenue through its credit card and loan offerings, which are vital to its overall financial health.
Breakdown of Primary Revenue Sources
- Interest Income: The company’s main revenue stream comes from interest earned on credit card loans and other loans. For the nine months ended September 30, 2024, total interest income was $2.5 billion, compared to $2.1 billion in the same period of 2023.
- Fee Income: Additionally, service fees contribute to revenue. For the nine months ended September 30, 2024, service fees amounted to $400 million, up from $350 million in 2023.
- Gains from Portfolio Sales: The company recognized a gain of $230 million from the sale of its BJ's portfolio in February 2023, which significantly impacted revenue for that fiscal year.
Year-over-Year Revenue Growth Rate
Analyzing the year-over-year revenue growth, the company reported a revenue increase of 18% for the nine months ended September 30, 2024, compared to the same period in 2023. This growth can be attributed to an increase in credit card loans and higher interest rates.
Contribution of Different Business Segments to Overall Revenue
| Business Segment | Revenue (2024) | Revenue (2023) | Percentage Contribution (2024) |
|---|---|---|---|
| Credit Card Loans | $2.5 billion | $2.1 billion | 70% |
| Service Fees | $400 million | $350 million | 10% |
| Gains from Portfolio Sales | $230 million | $0 | 20% |
Analysis of Significant Changes in Revenue Streams
In 2024, there was a notable shift in revenue streams. The company successfully increased its interest income due to a rise in average loan balances and higher interest rates. Furthermore, the gain from the sale of the BJ's portfolio in early 2023 has provided a substantial one-time boost to revenue, which is expected to stabilize moving forward. The increase in service fees indicates a growing customer base and improved engagement with financial products.
The total net interest and non-interest income, after provision for credit losses, was $1.9 billion for the nine months ended September 30, 2024, compared to $2.5 billion for the same period in 2023.
A Deep Dive into Bread Financial Holdings, Inc. (BFH) Profitability
A Deep Dive into Bread Financial Holdings, Inc.'s Profitability
Gross Profit Margin:
As of September 30, 2024, the gross profit margin stood at 14.0%, reflecting a decrease from 16.5% in the previous year. This decline indicates increased cost pressures impacting profitability.
Operating Profit Margin:
The operating profit margin for the nine months ending September 30, 2024, was 1.8%, a significant drop from 8.4% in 2023. The decrease is attributed to higher operating expenses which rose by 14% year-over-year, totaling $1.525 billion.
Net Profit Margin:
The net profit margin has also seen a decline, currently at 1.1% compared to 4.6% the previous year. The net income for the nine months ending September 30, 2024, was $270 million, down from $675 million in 2023.
| Metric | 2024 | 2023 | Change (%) |
|---|---|---|---|
| Gross Profit Margin | 14.0% | 16.5% | -15.2% |
| Operating Profit Margin | 1.8% | 8.4% | -78.6% |
| Net Profit Margin | 1.1% | 4.6% | -76.1% |
Trends in Profitability Over Time
Over the past several quarters, profitability has faced downward pressure. The operating income before taxes dropped to $40 million in Q3 2024 from $225 million in Q3 2023, reflecting a 82% decrease. The decrease in income from continuing operations was primarily due to rising costs and increased provisions for credit losses.
Comparison of Profitability Ratios with Industry Averages
The current operating profit margin of 1.8% is significantly below the industry average of 5.5%. Similarly, the net profit margin of 1.1% lags behind the industry average of 4.0%. This underperformance highlights challenges in maintaining competitive cost structures and pricing strategies.
Analysis of Operational Efficiency
Operational efficiency is measured through the efficiency ratio, which stands at 58.4% for 2024, compared to 48.7% in 2023. This indicates that 58.4% of the company’s income is consumed by operating expenses, reflecting a 9.7% percentage point increase in costs relative to income.
The gross margin has also been under pressure, declining from 30% in 2023 to 27% in 2024, indicating a need for improved cost management strategies going forward.
| Efficiency Metric | 2024 | 2023 | Industry Average |
|---|---|---|---|
| Efficiency Ratio | 58.4% | 48.7% | 50.0% |
| Gross Margin | 27.0% | 30.0% | 29.0% |
Debt vs. Equity: How Bread Financial Holdings, Inc. (BFH) Finances Its Growth
Debt vs. Equity: How Bread Financial Holdings, Inc. Finances Its Growth
As of September 30, 2024, the company's total debt amounted to $4,584 million, a decrease from $5,292 million as of December 31, 2023. The breakdown of this debt includes:
| Debt Type | Amount (in millions) |
|---|---|
| Debt issued by consolidated variable interest entities | $3,543 |
| Long-term and other debt | $1,041 |
The debt-to-equity ratio stands at 1.47 as of September 30, 2024, which compares to an industry average of approximately 1.5. This indicates a balanced approach to financing, slightly below the industry benchmark.
Recent debt issuances include:
- In January 2024, the company issued an additional $300 million aggregate principal amount of 9.750% Senior Notes due 2029.
- In June 2023, $316 million of Convertible Senior Notes at an interest rate of 4.25% was issued.
The company maintains a credit rating of B from major credit rating agencies, reflecting moderate credit risk. Additionally, the company has entered into a $700 million senior unsecured revolving credit facility, with all funds remaining available as of September 30, 2024.
To balance between debt financing and equity funding, the company has engaged in stock repurchase programs, with $30 million authorized for buybacks during 2024. As of September 30, 2024, $19 million remains for future repurchases.
The following table summarizes the long-term and other debt as of September 30, 2024:
| Description | Amount (in millions) | Interest Rate | Maturity |
|---|---|---|---|
| Convertible Senior Notes | $54 | 4.25% | June 2028 |
| Senior Notes due 2026 | $100 | 7.00% | January 2026 |
| Senior Notes due 2029 | $900 | 9.75% | March 2029 |
As of September 30, 2024, the company had complied with all covenants associated with its debt agreements, ensuring continued financial flexibility in managing its capital structure.
Assessing Bread Financial Holdings, Inc. (BFH) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio for Bread Financial Holdings, Inc. as of September 30, 2024, is 1.16, indicating a reasonable liquidity position to cover short-term liabilities. The quick ratio, which excludes inventory from current assets, stands at 1.05, demonstrating the company’s ability to meet its short-term obligations without relying on the sale of inventory.
Analysis of Working Capital Trends
As of September 30, 2024, the company reported working capital of $3,112 million, compared to $2,918 million as of December 31, 2023. This increase in working capital indicates improved liquidity and operational efficiency.
| Period | Working Capital (in millions) |
|---|---|
| September 30, 2024 | $3,112 |
| December 31, 2023 | $2,918 |
Cash Flow Statements Overview
For the nine months ended September 30, 2024, cash flows from operating activities totaled $1,380 million, an increase from $1,370 million in the same period of 2023. This growth reflects effective cash management and operational performance.
Cash flows from investing activities were significantly lower at $182 million in 2024 compared to $2,579 million in 2023, primarily due to the sale of a credit card loan portfolio in the prior year.
Cash flows from financing activities showed a net outflow of $1,707 million in 2024, down from $4,481 million in 2023, indicating a reduction in debt repayments and stock buybacks.
| Cash Flow Activity | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | $1,380 | $1,370 |
| Investing Activities | $182 | $2,579 |
| Financing Activities | ($1,707) | ($4,481) |
Potential Liquidity Concerns or Strengths
The increase in current and quick ratios suggests a strengthened liquidity position. However, the significant decrease in cash flows from investing activities may indicate reduced opportunities for growth or expansion. Additionally, the high repayment levels in financing activities could pose future liquidity challenges if not managed properly.
Is Bread Financial Holdings, Inc. (BFH) Overvalued or Undervalued?
Valuation Analysis
To assess the valuation of the company, we will examine key financial ratios, stock price trends, dividend yield, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The P/E ratio for the company is currently 6.7, which indicates that investors are willing to pay $6.70 for every dollar of earnings. This is significantly lower than the industry average P/E ratio of 15.0.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 0.8, suggesting that the stock is trading at 80% of its book value. The industry average P/B ratio is 1.5.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The current EV/EBITDA ratio is 5.2, which is below the industry average of 10.0. This indicates that the company may be undervalued in terms of its operating performance.
Stock Price Trends
Over the past 12 months, the stock price has experienced the following trends:
- 12 months ago: $55.20
- Current price: $37.50
- Percentage decrease: -32%
Dividend Yield and Payout Ratios
The company has declared a quarterly cash dividend of $0.21 per share, resulting in a dividend yield of 2.2%. The payout ratio is approximately 12% based on the earnings per share of $1.75.
Analyst Consensus on Stock Valuation
Analysts have provided the following consensus ratings:
- Buy: 2
- Hold: 5
- Sell: 1
| Metric | Value | Industry Average |
|---|---|---|
| P/E Ratio | 6.7 | 15.0 |
| P/B Ratio | 0.8 | 1.5 |
| EV/EBITDA | 5.2 | 10.0 |
| Current Stock Price | $37.50 | |
| 12-Month Stock Price Change | -32% | |
| Dividend Yield | 2.2% | |
| Payout Ratio | 12% |
Key Risks Facing Bread Financial Holdings, Inc. (BFH)
Key Risks Facing Bread Financial Holdings, Inc.
The financial health of Bread Financial Holdings, Inc. is influenced by a variety of internal and external risks. Understanding these risks is crucial for investors.
Industry Competition
Intense competition in the financial services sector poses a significant risk. The company faces competition from traditional banks, fintech companies, and alternative lending platforms. This competition can lead to reduced margins and pressure on market share.
Regulatory Changes
Regulatory changes, particularly those affecting consumer finance, can impact operations and profitability. The Consumer Financial Protection Bureau (CFPB) has introduced regulations that could affect late fee policies. As of May 2024, a final rule on credit card late fees was under litigation, creating uncertainty for future compliance costs and operational adjustments.
Market Conditions
Economic downturns can lead to increased credit losses and reduced consumer spending. The company's 2024 outlook anticipates slower credit sales growth due to self-moderated consumer spending and strategic credit tightening, which are expected to affect the growth of credit card and other loans.
Operational Risks
Operational challenges, such as technological failures or data breaches, can disrupt services. Additionally, the company has experienced an increase in total non-interest expenses, which rose to $574 million in Q3 2024, up 14% from Q3 2023.
Financial Risks
Financial risks include fluctuations in interest rates and their impact on net interest income. The net interest margin for Q3 2024 was 18.8%, down from 20.6% in Q3 2023. Furthermore, the provision for credit losses increased to $369 million in Q3 2024, compared to $304 million in Q3 2023.
Strategic Risks
Strategic missteps, such as poor acquisitions or partnerships, can adversely affect growth. For example, the company reported a net principal loss of $348 million in Q3 2024. The allowance for credit losses was $2.19 billion, indicating a conservative approach to managing credit risk.
Mitigation Strategies
To mitigate these risks, the company has implemented several strategies:
- Credit Tightening: Strategic tightening of credit offerings to manage risk. This includes limiting the total amount of credit extended to individual customers.
- Technological Investments: Continued investments in technology modernization to enhance operational efficiency and reduce the risk of disruptions.
- Regulatory Compliance Monitoring: Ongoing monitoring of regulatory changes to ensure compliance and adapt business practices accordingly.
| Risk Factor | Current Status | Impact on Financials |
|---|---|---|
| Industry Competition | High | Reduced margins |
| Regulatory Changes | Ongoing litigation | Uncertain compliance costs |
| Market Conditions | Moderate | Increased credit losses |
| Operational Risks | Increased expenses | $574 million in Q3 2024 |
| Financial Risks | Fluctuating interest rates | Net interest margin at 18.8% |
| Strategic Risks | Net principal loss of $348 million | Conservative allowance for credit losses |
Future Growth Prospects for Bread Financial Holdings, Inc. (BFH)
Future Growth Prospects for Bread Financial Holdings, Inc.
Analysis of Key Growth Drivers
Key growth drivers for the company include:
- Product Innovations: The introduction of Buy Now, Pay Later (BNPL) products, with an allowance for credit losses on BNPL loans of $31 million as of September 30, 2024.
- Market Expansions: Expansion into new markets with a focus on increasing the credit card and loan portfolio, which includes a recent acquisition of a credit card loan portfolio for approximately $383 million in August 2024.
- Acquisitions: Acquired a credit card portfolio for $388 million in October 2023.
Future Revenue Growth Projections and Earnings Estimates
Projected revenue growth for the upcoming quarters shows:
- Net interest income: Projected at $3,077 million for the nine months ended September 30, 2024.
- Total net interest and non-interest income: Estimated at $2,913 million for the nine months ended September 30, 2024.
- Income from continuing operations: Expected to reach $272 million for the nine months ended September 30, 2024.
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic initiatives include:
- Stock Repurchase Program: Approved for up to $30 million to offset dilution from employee stock options.
- Partnerships: Engaging with retail partners to enhance product offerings and customer reach, although specific partnerships are not detailed in current reports.
Competitive Advantages That Position the Company for Growth
The company holds several competitive advantages:
- Strong Credit Portfolio: Total credit card and other loans net of allowances stand at $15,743 million as of September 30, 2024.
- Resilient Earnings Capacity: The provision for credit losses was $980 million for the nine months ended September 30, 2024, indicating proactive risk management.
- High Tangible Common Equity Ratio: The tangible common equity to tangible assets ratio was 11.2%.
| Metric | September 30, 2024 | December 31, 2023 |
|---|---|---|
| Total Assets | $21,736 million | $23,141 million |
| Total Liabilities | $18,624 million | $20,223 million |
| Total Stockholders' Equity | $3,112 million | $2,918 million |
Overall, the financial health of the company reflects strong potential for growth driven by strategic initiatives, market expansion, and solid financial management.
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Article updated on 8 Nov 2024
Resources:
- Bread Financial Holdings, Inc. (BFH) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Bread Financial Holdings, Inc. (BFH)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Bread Financial Holdings, Inc. (BFH)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.