Broadridge Meets EPS, Guides Lower - Analyst Blog
08 Fevereiro 2012 - 7:30AM
Zacks
Broadridge Financial
Solutions Inc.’s (BR) second-quarter fiscal 2012 adjusted
earnings per share (EPS) of 12 cents were on par with the Zacks
Consensus Estimate and better than 8 cents earned in the prior-year
quarter.
Revenues
Total revenue in the second quarter
was $479.8 million, up 8.5% from $442.3 million a year ago. The
revenue figure missed the Zacks Consensus Estimate of $497.0
million. The improvement was buoyed by an increase in recurring
revenues from acquisitions, partially offset by lower contribution
from event-driven mutual fund proxy fee revenues. Mutual fund
event-driven revenues are highly cyclical in nature and
unpredictable. Positive currency translation, net new businesses,
contributions from recent acquisitions and an outsourcing services
agreement with Penson Worldwide Inc. (PNSN) also
aided the revenue growth.
Broadridge managed to sustain a 99%
client retention rate.
Segment
Revenues
The Investor Communication
Solutions segment generated $316.8 million in revenues, up 7.7%
from $294.1 million in the prior-year quarter. The increase was
attributable to higher recurring revenues from net new business and
revenue gains from acquisitions, with event-driven mutual fund
proxies being the dampener.
The Securities Processing Solutions
segment reported revenues of $161.1 million, up 10.3% from $146.1
million in the prior-year quarter. The increase was attributable to
the strength in new business, Penson outsourcing services agreement
and the City Networks Ltd. acquisition.
Operating
Results
Total expenses in the quarter crept
up 10.2% year over year to $469.2 million. Reported pre-tax income
was $10.6 million, down from $16.5 million in the year-earlier
quarter. Pre-tax margin dropped 80 basis points year over year to
1.4%.
Net income from continuing
operations decreased 35.8% year over year to $6.8 million. Earnings
per share in the quarter fell 35.2% to 5 cents from 8 cents in the
year-ago quarter. Excluding the effect of International
Business Machines Inc. (IBM) migration costs and
impairment charge on investment in the common stock of Penson
Worldwide, adjusted net income was $15.4 million or 12 cents,
compared to $10.6 million or 8 cents in the year-ago quarter. This
cost of migrating to IBM’s platform follows an information
technology services agreement signed between the two companies in
March 2010. Per the deal terms, IBM will provide certain aspects of
Broadridge’s information technology infrastructure that are
currently being provided under a data center outsourcing services
agreement with Automatic Data Processing Inc.
(ADP).
Balance Sheet
Broadridge exited the quarter with
cash and cash equivalents of $238.2 million, down from $252.8
million in the prior quarter. Receivables decreased 9.7% from the
previous quarter to $296.6 million. Long-term debt increased $30.0
million sequentially to $594.3 million.
Guidance
For fiscal 2012, Broadridge expects
revenue growth of 8.0% to 9.0% (previously 9.0% to 11.0%), based on
recurring revenue closed sales and acquisitions, representing a 99%
client revenue retention rate. Recurring revenue closed sales are
forecast in the range of $110.0 million to $150.0 million. Earnings
per share are expected between $1.29 and $1.39 (previously
$1.34–$1.44). Excluding the effect of IBM migration costs, adjusted
EPS is expected in the range of $1.50–$1.60. Management also
expects adjusted free cash flow in the range of $223.0 million to
$260.0 million.
Moreover, management still thinks
that contribution from the event-driven mutual fund proxy revenues
will be negligible.
Our Take
Broadridge Financial posted a
modest second quarter by matching the Zacks Consensus Estimate on
the bottom line, but missing the top line. Broadridge has lowered
its revenue and GAAP earnings guidance due to lower-than-expected
event-driven revenues and higher amortization charge.
However, we believe that weaker
market activity during the recession continues to impact the
company’s performance as can be inferred from the dull fiscal 2012
guidance. Management expects a weaker trend in the event-driven
mutual fund proxy revenue. Additionally, Broadridge faces
significant competition from companies such as HD Supply,
DST Systems Inc. (DST) and State Street
Corp. (STT), which have intensified pricing pressure for
the company. But, we remain optimistic on Broadridge’s strategic
acquisitions and potential product launches.
Currently, Broadridge has a Zacks
#3 Rank, implying a short-term Hold recommendation.
AUTOMATIC DATA (ADP): Free Stock Analysis Report
BROADRIDGE FINL (BR): Free Stock Analysis Report
DST SYSTEMS (DST): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis Report
PENSON WORLDWD (PNSN): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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