Earnings Preview: Will Citigroup’s (C) turnaround efforts be reflected in Q2 report?

For Citigroup Inc. (NYSE: C), 2023 was an important year when it initiated a major organizational restructuring to become a streamlined and more efficient business. In the new phase of its journey, the investment bank’s focus is on delivering on its medium-term targets. The market will be closely following the upcoming earnings, looking for updates on its turnaround program.

The banking behemoth’s shares have maintained an uptrend since last year — though they slid to a multi-year low in October 2023 — and gained about 20% in the past six months. Considering its focused turnaround program and aggressive cost-saving initiatives, the company looks poised to create good shareholder value. With the relatively low valuation, it is unlikely to disappoint long-term investors.

Positive View

Citigroup will be reporting second-quarter results on Friday, July 12, at 8:00 am ET. On average, Wall Street analysts project earnings of $1.41 per share for the June quarter. In the prior-year quarter, the company earned $1.33 per share. The positive forecast reflects an estimated 3.3% increase in Q2 revenues to $20.08 billion.

More than six months into the new fiscal year, the New York-based company has a new management structure and has moved closer to its goal of streamlining end-to-end processes and strengthening the control environment. The diversification of non-core assets and cost-cutting measures are expected to lift ROTCE starting the next fiscal year.

Cost Trend

In recent quarters, Citigroup’s profitability was negatively impacted by one-off charges and restructuring-related expenses. As part of the reshuffle, the company eliminated around 5,000 jobs and reduced management layers from 13 to eight. As the revamp continues, the target is to lay off 20,000 employees globally in the next two years.

“With a strong balance sheet, ample liquidity, and diligent risk management, we are well-positioned to support our clients through whatever environment comes to pass. Moreover, we think environments like these play to our strengths. Given how far we are down the path of our simplification and divestitures, 2024 will be a turning point as we will be able to completely focus on the performance of our five businesses and our Transformation. I recognize the importance of this year and am highly confident we will see the benefits of the actions we have taken through the momentum of our businesses,” Citigroup’s CEO Jane Frazer said at a recent interaction with analysts.

Mixed Q1

In the three months ended March 2024, weak performance by the Markets and Wealth business segments, which together account for a third of the top line, resulted in a 2% decrease in total revenues to $21 billion. The Services business did quite well, continuing the trend seen in FY23. First-quarter net income decreased to $3.37 billion or $1.58 per share from $4.6 billion or $2.19 per share in the comparable quarter a year earlier. Both earnings and revenues surpassed the market’s expectations. Return on equity was $6.6% during the three months, down 290 basis points year-over-year.

Extending the uptrend seen last month, the bank’s stock made modest gains this week. However, it mostly traded lower on Friday after opening the session at $64.46.