Investment bank Goldman Sachs (GS – Free Goldman Sachs Stock Report) issued second-quarter revenue and share-net results that were below our estimates, but nonetheless showed year-over-year improvement.
Revenues of $10.3 billion were a solid increase over the $9.7 billion sum in the second quarter of 2016, despite falling short of our $10.5 billion estimate. Meanwhile, earnings per share of $3.95 marked an improvement over $3.72 in the prior-year period, despite missing our $4.20 estimate.
The second quarter saw a mixed operating environment for the company, which drove strong underwriting and merger & acquisition activity, while constraining market-making activity.
Weakness was concentrated in the Institutional Client Services segment, which experienced a 17% revenue decline on a year-over-year basis. This was led by a steep drop in revenues from interest rate products, commodities, credit products, and currencies, which was only slightly offset by higher revenues in mortgages.
On the bright side, the Investing & Lending division saw a large boost in revenues from net gains in private equities, which were positively impacted by corporate performance. Meanwhile, the Investment Management segment saw steady growth due to higher management and other fees, reflecting improved average assets under supervision, as well as higher incentive fees and transaction revenues. This was a good omen for the company, as it has sought to reduce its reliance on volatile trading activity in favor of the more stable Investment Management business.
In the coming months, we expect GS shares to be driven by the economic picture, particularly in the U.S. They will also be influenced by tax and regulatory issues, as Congress and the new presidential administration have stated their intent to reform the corporate tax code as well as reduce regulation.
While we still expect to see strong full-year revenue and earnings growth, we have scaled back our estimates. We have lowered our full-year 2017 revenue estimate from $43.0 billion to $42.5 billion, and our share net estimate from $19.95 to $19.50.
About The Company: The Goldman Sachs Group is a global investment banking and securities firm. It operates in four business segments: Investment Banking (21% of 2016 revenues); Institutional Client Services (47%); Investing & Lending (13%); and Investment Management (19%). In 2016, 40% of the company’s revenues came from outside of the Americas.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
