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Armour Residential REIT, Inc. (ARR)·Q1 2025 Earnings Summary

Executive Summary

  • Distributable EPS of $0.86 was slightly below Wall Street consensus of $0.873, while GAAP EPS printed $0.32; net interest income rose to $36.3M as economic net interest spread widened to 1.88% from 1.53% QoQ .*
  • Book value per share fell to $18.59 from $19.07 QoQ, and management disclosed a post-quarter estimate of $16.56 as of April 23 after the April dividend accrual, a key stock narrative catalyst .
  • Liquidity strengthened to $848.0M; ARR raised $371.4M via ATM issuance in Q1 and maintained the $0.24 monthly common dividend for April and May .
  • Management highlighted compelling levered ROEs of 18%–21% on production/premium coupon MBS and reiterated a strong focus on liquidity (“liquidity is king”), amid swap-spread dislocations and GSE reform headlines .

What Went Well and What Went Wrong

What Went Well

  • Economic net interest spread improved to 1.88% (vs. 1.53% in Q4) and net yield rose to 2.24%, supporting distributable earnings stability .
  • Liquidity increased to $848.0M; management emphasized defensive positioning: “liquidity is king,” strengthening resilience against market volatility .
  • Attractive carry and ROEs: “On a duration hedged and levered basis, the ROEs on production and premium coupon MBS look very compelling with estimates ranging from 18% to 21%” .

What Went Wrong

  • Book value per share declined QoQ to $18.59 and then further to $16.56 post-quarter (after April dividend accrual), elevating investor concern about capital and dividend headroom .
  • Against S&P Global consensus, distributable EPS modestly missed and “Revenue” missed more notably, implying top-line underperformance vs. expectations.*
  • April market volatility: management noted agency asset spread widening of ~15 bps quarter-to-date and maintained cautious hedging amid swap-spread dislocations .

Financial Results

Note: ARR emphasizes Net Interest Income and non-GAAP Distributable Earnings rather than “Revenue” in press materials.

MetricQ3 2024Q4 2024Q1 2025
Net Interest Income ($USD Millions)$1.8 $12.7 $36.3
GAAP EPS ($USD)$1.21 $(0.83) $0.32
Distributable EPS ($USD)$1.00 $0.78 $0.86
Margin/Spread KPIQ3 2024Q4 2024Q1 2025
Economic Net Interest Spread (%)2.00% 1.53% 1.88%
Economic Net Yield on Interest Earning Assets (%)2.30% 1.91% 2.24%
KPIsQ3 2024Q4 2024Q1 2025
Book Value per Common Share ($)$20.76 $19.07 $18.59
Liquidity ($USD Millions)$667.4 $608.0 $848.0
Agency MBS Portfolio ($USD Billions)$12.4 $12.4 $14.4
Debt-to-Equity Ratio (x)7.74x 7.87x 7.33x
Implied Leverage (x)8.18x 7.95x 7.87x
Interest Rate Swaps Notional ($USD Billions)$6.7 $7.2 $8.4
Common Dividend per Quarter ($)$0.72 $0.72 $0.72

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Common Dividend per Month ($/share)April 2025$0.24 (Guidance, Mar 25) $0.24 (Confirmed, Apr 1) Maintained
Common Dividend per Month ($/share)May 2025N/A$0.24 (Declared, Apr 22) Maintained
Series C Preferred Dividend per Month ($/share)Q2 2025N/A$0.14583 (Apr–Jun confirmed) Maintained
2025 Dividend Tax Characterization2025N/APreferred likely fully taxable; common likely at least partially ordinary income Disclosure (no change)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 2024)Previous Mentions (Q-1: Q4 2024)Current Period (Q1 2025)Trend
Liquidity disciplineLiquidity $667M; leverage ~8.18x Repo funding plentiful; liquidity ~50% of capital “Liquidity is king”; >$750M liquidity cited Emphasis increased
ROE opportunity in Agency MBSStrong carry; improving economic spread 18%–19% levered ROE targeted 18%–21% levered ROE opportunity Improving
GSE reform headlinesNoted in materials; conventional/Ginnie exposure mix Reform a wildcard; not imminent; headline risk Ongoing; “not priced in”; watch LLPA and profitability tweaks Persisting risk
Swap spreads and hedging mixNot detailed~25% treasury-based hedges; rest swaps ~30% treasury-based; ~70% swaps; manage dislocations More treasuries
Dividend stance$0.24/month maintained $0.24/month maintained $0.24/month maintained (Apr/May) Stable

Management Commentary

  • “On a duration hedged and levered basis, the ROEs on production and premium coupon MBS look very compelling with estimates ranging from 18% to 21%” .
  • “Liquidity is king… we are very jealous of our liquidity in volatile times” .
  • “Our most current available estimate of book value is… $16.56 per common share [as of April 23], after the accrual of April dividends” .
  • Hedge stance: “We increased the share of our treasury-based hedges slightly from 25% to 30%… we expect normalization in swap spreads” .
  • Portfolio positioning: Overweight 5.5% and 6% coupons; modest specified pools and some TBA rolls to enhance liquidity .

Q&A Highlights

  • Risk management and leverage: Management is balancing attractive asset ROEs with elevated volatility; running ~7–8x leverage while protecting liquidity (“liquidity is king”) .
  • Coupon stack and sales: Bias to near-par production coupons (5%–5.5%); sold assets around April 2 risk event to preserve flexibility while retaining spread exposure .
  • Buyback capacity: Some capacity exists but balanced against attractive portfolio returns; cautious about cutting portfolio size .
  • GSE reform: Focus on sovereign backstop implications, risk weights, guarantee fees; headline risk not fully priced; expect profitability adjustments first (e.g., LLPAs) .
  • Swap spreads and SLR: Dislocation acknowledged; mix tilted 70% swaps/30% treasuries; SLR relief could improve repo supply/demand dynamics .

Estimates Context

Estimate Metric (Q1 2025)ConsensusActual# of Estimates
Primary EPS ($)0.87346*0.86*7*
Revenue ($USD)$52.80M*$40.47M*5*
Target Price ($)17.0*17.0*N/A*
  • Result vs estimates: EPS slight miss; Revenue notable miss. Expect some near-term estimate recalibration given top-line shortfall and post-quarter BVPS update. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Book value trajectory is the key stock driver: $18.59 at quarter-end with a post-quarter estimate of $16.56 after dividend accrual; further BV sensitivity to spreads and hedges will dominate near-term trading .
  • Earnings quality stable: Distributable EPS of $0.86 continues to cover the $0.72 quarterly dividend; economic spread recovery supports carry, though estimates modestly missed .*
  • Portfolio positioned for carry: Overweight 5.5%–6% coupons and diversified hedges (70% swaps/30% treasuries) aim to benefit from spread normalization and steepening .
  • Liquidity is robust: $848M liquidity affords flexibility amid volatility and supports dividend stability, but capital raises and BV moves remain watchpoints .
  • Macro/regulatory watch: GSE reform and swap-spread dynamics are key external variables; headline risk likely to create episodic volatility without clear roadmap yet .
  • Leverage managed but elevated: Debt-to-equity at 7.33x; implied leverage ~7.87x—management is cautious given volatility; buybacks opportunistic but secondary to portfolio returns .
  • Trading implications: Near-term stock moves likely track BVPS updates, spread volatility, and any concrete developments on SLR/GSE reform; medium-term thesis hinges on carry and ROE realization versus dilution risk from capital actions .

*Values retrieved from S&P Global.