Gold Pawn business shows positive trend Part1

Cash America International, Inc. http://www.cashamerica.com/ reported second quarter profit of $26.98 million or $0.84 per share versus $20.9 million or $0.66 per share last year.Adjusted earnings were $29.47 million or $0.92 per share versus $22.69 million or $0.72 per share a year ago.

Earnings levels exceeded the top end of estimates due to higher growth in revenue from both U.S. pawn lending activities and the company's E-Commerce business outside the U.S., which combined with lower losses on consumer loans to increase earnings above expectations for the second quarter.

Total revenue grew to $334.25 million from last year's $292.08 million. The increase was mainly due to 15% increase in pawn loan fees and service charges and a 14% increase in merchandise sales vs last year.

 The Company experienced strong growth in both our secured and unsecured loan products this quarter as certain macro-economic factors continue to drive consumer demand for short-term credit. This growth combined with lower loss rates and higher retail margins provided a real boost to revenues and earnings.

The Company remains encouraged with the progress made in diversifying both the geography and product mix of business. Looking ahead, the company expects the third quarter 2011 net income per share to be between $1.05and $1.10 per share compared to 90 cents per share in the third quarter of 2010.

Additionally, the Company said the Board of Directors, at its regularly scheduled quarterly meeting, declared a $0.035 per share cash dividend on common stock outstanding to be paid at the close of business  on August 17, 2011 to shareholders of record on August 3, 2011.

In addition, because of the success in the current quarter and the higher than originally expected balances of lending assets, management increased its previously reported earnings expectations for its fiscal 2011 to a range of between $4.28 and $4.48 per share, compared to $3.67 per share in fiscal 2010.

Cash America International offers specialty financial services to consumers, including more than 780 lending operations in 23 states under the names “Cash America Pawn,” “SuperPawn,” “Maxit,” “Pawn X-Change,” “Cash America Payday Advance,” and “Cashland.”

The company operates more than 180 pawn-lending locations, of which the company is a majority owner, operating in 21 jurisdictions in central and southern Mexico under the name “Prenda Fácil.The firm operates another 112 franchised and six company-owned check-cashing centers which are operating in 18 US states under the name “Mr. Payroll.” Cash America also offers consumer loans over the Internet in 30 states, as well as internationally.

One factor helping results is the price of gold. Articles made from the precious metal tend to be collateral put up by Cash America’s customers. Thus, the rising price of gold increases the company’s ability to make larger loans on which they earn interest. Higher gold prices also drive higher scrapping revenues, and boost retail revenues

One reason for the volatility is that regulatory moves at the state level to limit fees and interest rates on cash advances and short-term loans can impact margins, and even cause Cash America to shutter operations in those states. Given the increased regulatory mindset in Washington, it is a valid concern for these shares.

The combination of high unemployment and a cautious lending environment by banks has fueled big demand for Cash America’s services. Per-share profits rose 27% in the June quarter on a 14% increase in revenue.

Cash America has done a good job of addressing these concerns by expanding internationally, especially its e-commerce activities.Analysts expect Cash America to earn $4.27 per share in 2011 and $4.94 per share in 2012. The stock currently trades at 14 times the 2011 consensus earnings estimate, not dirt cheap but reasonable for a stock showing good growth. The issue provides the added kicker as a “gold play.”