Ally Financial Reports Q3 Earnings Friday: What's Going On?

Ally Financial Inc (NYSE:ALLY) is set to report its third-quarter earnings during Friday’s pre-market session, and investors are closely watching for updates on the company's ongoing credit challenges.

In September, CFO Russell Hutchinson revealed during a New York conference that the company is facing intensifying difficulties among borrowers, particularly in its core retail auto lending segment.

With delinquencies and net charge-offs exceeding initial expectations, tomorrow's earnings report could offer critical insight into how these headwinds have impacted the company’s financial performance in the third quarter.

What To Know: During the second quarter, Ally posted mixed results. The company reported total revenue of $2.08 billion, down 1.6% year-over-year, as inflationary pressures and higher interest rates weighed on consumers.

Net income fell to $327 million, a sharp 58% decline from the previous year, driven largely by rising loan losses and provisions for credit losses, which jumped to $490 million. Ally's net interest margin, a key profitability metric for lenders, also contracted to 3.39% from 4.03% in the second quarter of 2022, reflecting increased funding costs amid higher rates.

Ally's retail auto lending portfolio, which represents a significant portion of its business, faced growing strain as borrowers struggled with inflation and rising living costs. The company reported $10.7 billion in auto originations for the second-quarter, down from $13.3 billion a year earlier.

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While auto lending demand remained robust, the uptick in delinquencies and charge-offs signaled that more consumers were falling behind on their payments. Ally’s loan delinquency rate in the retail auto sector rose to 3.81% in the second-quarter, from 3.53% the prior quarter.

What’s Next: Heading into the third quarter, these trends have only worsened. At the September conference, Hutchinson disclosed that delinquencies in the retail auto segment had spiked by 20 basis points in July and August compared to earlier projections.

Additionally, net charge-offs, which reflect loans unlikely to be repaid, increased by 10 basis points. Hutchinson cited the dual pressures of soaring inflation and a weakening job market as key drivers behind the rising credit risk.

Ally's stock has been volatile in recent weeks, as these mounting credit issues have raised concerns about the company's ability to manage loan losses and maintain profitability. Investors are also wary of broader economic conditions, with last month's weaker-than-expected jobs report and ongoing Federal Reserve policy uncertainty casting a shadow over the financial sector.

Although Ally has not revised its earnings guidance, Hutchinson emphasized that the firm will prioritize capital and expense management as it navigates these challenging times.

Analysts will be keen to see if Ally’s third-quarter results reveal further deterioration in its credit metrics, especially in light of the worsening delinquency rates disclosed last month.

Any adjustments to the company's forward guidance could also signal how management plans to mitigate these risks going forward.

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How To Buy ALLY Stock

By now you're likely curious about how to participate in the market for Ally Financial – be it to purchase shares, or even attempt to bet against the company.

Buying shares is typically done through a brokerage account. You can find a list of possible trading platforms here. Many will allow you to buy ‘fractional shares,' which allows you to own portions of stock without buying an entire share. For example, some stock, like Berkshire Hathaway, or Amazon.com, can cost thousands of dollars to own just one share. However, if you only want to invest a fraction of that, brokerages will allow you to do so.

In the the case of Ally Financial, which is trading at $35.93 as of publishing time, $100 would buy you 2.78 shares of stock.

If you're looking to bet against a company, the process is more complex. You'll need access to an options trading platform, or a broker who will allow you to ‘go short' a share of stock by lending you the shares to sell. The process of shorting a stock can be found at this resource. Otherwise, if your broker allows you to trade options, you can either buy a put option, or sell a call option at a strike price above where shares are currently trading – either way it allows you to profit off of the share price decline.

According to data from Benzinga Pro, ALLY has a 52-week high of $45.46 and a 52-week low of $22.54.