Citigroup (C -2%) delivered solid Q2 results, with both top- and bottom-line beats. The investment and financial services giant showed firm growth across all segments, a positive shift from Q2 when some businesses saw year-over-year declines. Citigroup also reiterated its FY24 and medium-term financial goals.
Why are shares lower today? Despite the solid Q2 performance, Citigroup's +15% run since April lows had already factored in the positive numbers. Consequently, the moderate headline figures compared to Q1 triggered profit-taking.
- Citigroup seldom misses earnings estimates, and Q2 was no exception, with an EPS of $1.52. The company has been cutting costs, recently completing a round of layoffs and divesting its India consumer business. This leaner structure helped Citigroup generate positive operating leverage, even with a modest 3.6% year-over-year revenue increase to $20.14 billion.
- The modest revenue increase pleased investors after two straight quarters of year-over-year declines, primarily due to M&A-related impacts.
- All segments contributed positively in Q2, a reversal from last quarter when Markets and Wealth revenues declined. Markets saw a 6% revenue increase, contrasting a 7% drop last quarter, driven by growth in Equity market revenue, offsetting lower Fixed Income market revenue.
- Wealth revenue ticked 2% higher, mainly due to non-interest income from new client investment assets and rising market valuations. However, this was partially offset by a 4% drop in net interest income (NII) due to higher mortgage funding costs.
- Banking was the standout segment in Q2, with a 38% revenue jump supported by investment banking and corporate lending growth. USPB growth cooled off to 6% after six consecutive quarters of double-digit growth, but management remains optimistic about its proprietary and partner card businesses.
- Services also slowed, delivering a 3% revenue bump. Argentina remained a drag, pushing NII down by 1%. However, strong performance in Securities Services and momentum in Treasury and Trade Solutions mitigated this weakness.
- Looking forward, Citigroup maintained its FY24 guidance, projecting revenues of $80-81 billion and expenses of $53.5-53.8 billion, excluding the FDIC special assessment. The company also reiterated its medium-term goals, including a 4-5% revenue CAGR.
Citigroup's Q2 performance indicates that it is progressing well in its multi-year transformation plan. Recent quarters were marked by cost-cutting and productivity initiatives aimed at stronger profits as FY24 progressed. Q2 results show benefits unfolding faster than management might have expected. However, the solid run leading into Q2 likely already priced in these gains.
