DLLR Dfc Global Corp (MM)

DFC Global Corp. (DLLR) reported operating earnings of 51 cents per share for the fiscal second quarter 2012, ending December 31, a penny ahead of the Zacks Consensus Estimate but much higher than 37 cents earned in the year-ago quarter.

The operating results exclude non-cash interest on convertible debt, unrealized foreign exchange gain, non-cash impact of hedge ineffectiveness, cross-currency swap amortization and acquisition costs expensed.

Including these charges, GAAP net income was 58 cents per share in the reported quarter, compared with 53 cents in the prior-year quarter.

DFC Global continues to deliver strong numbers on the heels of solid performance at its core business units.

Operational Update

Total revenue for the quarter jumped 44% year over year to $263.4 million, a trifle lower than the Zacks Consensus Estimate of $264 million. Higher consumer lending revenue (shooting 61% year over year), pawn service fees and sales increasing nearly three-fold largely aided the upside.

Additionally, money transfer fees increased 24% year over year to $9.8 million, purchased gold sales revenue catapulted 59% to $18 million and other revenue increased 4% year over year to $19.9 million. However, check cashing revenue declined 5.7% to $34.7 million from the year-ago quarter.

Operating expenses shot up 49% year over year to $167.8 million, primarily attributable to higher salaries and benefits, provision for loan losses, occupancy costs and advertising cost.

DFC Global’s operating profit improved 38% year over year to $95.6 million.

The company also notched adjusted EBITDA of $74.6 million in the reported quarter, up 41% year over year.

Evaluation of Capital and Balance Sheet

At the end of December 31, 2011, the debt structure of DFC Global consisted of $44.8 million of U.S. senior convertible notes due 2027 and $120.0 million of U.S. senior convertible notes due 2028.

In addition, DFC Global has $600.0 million of senior unsecured notes which are not due until December 2016. The first potential put date is December 2012 for $44.8 million of U.S. senior convertible notes.

As of December 31, 2011, DFC Global had drawn $154.3 million of its $200.0 million global revolving credit facility. The company had drawn £5.3 million of its £7.0 million credit facility in the United Kingdom, and had drawn SEK 260 million and EUR 17.5 million of its respective SEK 325.0 million and EUR 17.5 million credit facilities in Scandinavia, to fund working capital needs.

Revised Outlook

DFC Global narrowed the adjusted EBITDA guidance to a range of $300.0-$305.0 million from the prior guidance of $295.0-$310.0 million

The company also tightened the operating earnings band to $2.05–$2.10 per share from $2.00–$2.15 per share earlier. DFC Global estimates strengthening of the U.S. currency during the fiscal second quarter such that the expected translation of the international financial results into U.S. Dollars for the remainder of the fiscal year, in relation to the Canadian and United Kingdom currencies, in particular, would weigh on the operating results by 9 cents a share.

The guidance considers an expected effective income tax rate from operations of 34% and 46.0 million diluted shares outstanding.

We maintain our Neutral recommendation on DFC Global. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in Berwyn, Pennsylvania, DFC Global provides a range of consumer financial products and services to under-banked consumers. It competes with Cash America International Inc. (CHS).

 
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