Amid Weak Trading, Schwab May Miss 1st-Quarter Estimates
By STACY FORSTER
WSJ.COM
Charles Schwab Corp., with its stock-trading activity declining in January and worsening in February, said Thursday that it might have trouble meeting Wall Street's expectations for the current quarter.
The leading online brokerage firm reported average daily volume for January was 222,200 trades, down 5% from December and down 26% from a year earlier.
And trading figures so far in February are even weaker. Schwab said average daily trades have slipped 18% to about 182,000 in the current month.
Christopher Dodds, Schwab's chief financial officer, said it is too early in the first quarter to give specific guidance, but with trading volume softening more than expected, Schwab might have difficulty meeting its earnings estimates.
"In this type of trading environment, I would be of the mind that achieving the current consensus will be difficult," Mr. Dodds said.
Schwab's report prompted Richard Repetto, an electronic-brokerage analyst for Putnam Lovell in New York, to lower his estimates by one cent. He now expects the company to post a profit of 13 cents for the quarter.
Mr. Repetto said he had expected trading activity by Schwab customers to increase by about 10% in January and 5% in February and March. Because the company's revenue largely depends on commission revenue -- it accounted for 37% of total revenue in the quarter ending Dec. 31 -- Mr. Repetto said Schwab's difficulty in meeting those targets would affect its bottom line.
Analysts had expected Schwab to report a profit of 15 cents a share for the first quarter ending in March, down 35% from 23 cents a share in the year-earlier period, according to First Call/Thomson Financial. The firm earned 11 cents a share for the fourth quarter ending Dec. 31.
Earlier this month, Datek Online Brokerage, a unit of closely held Datek Online Holdings Corp., said its daily trades in January were up 5% to 117,695 from December and Ameritrade Holding Corp. reported average daily trading activity was up 14% from December to 131,000.
But Datek also indicated this week it is averaging fewer than 100,000 trades per day so far this month, down 15% from January.
In reporting its earnings Wednesday, TD Waterhouse Group Inc. said its average daily trading volume for January was down about 6% from December. Like Schwab, TD Waterhouse caters more to buy-and-hold investors.
Account growth at Schwab remained on target, however. Schwab reported opening 100,000 new accounts with $12.5 billion in assets.
Online brokerage firms have been hit by the lackluster market, which has left more casual investors on the sidelines, hoping they can wait out the downturn.
But early figures from February show that despite the interest-rate cut last month and Federal Reserve Chairman Alan Greenspan's comments Tuesday, when he played down the risk of a recession, there is little to entice investors to enter the market.
In recent weeks, Schwab has taken a number of cost-control measures to weather the market conditions, including instituting a hiring freeze, reducing the salaries of top executives and asking employees to take unpaid furloughs.
The company said Thursday it remains focused on managing its expenses, and added the measures have produced savings for the firm. For example, it said the hiring restrictions have resulted in a decline in full-time employees, down 500 to 25,800 at the end of January.
Mr. Dodds said the company continues to evaluate its spending, with advertising and brand-development investments now on the table.
"We'll be looking at all those things while balancing the importance of innovation and enhancing our long term competitiveness," he said. |
