STT State Street Corporation

Broadridge Financial Solutions Inc. (BR) is scheduled to announce its fourth quarter fiscal 2011 results on August 11, 2011. There were no changes in analysts’ estimates in recent months.

Third Quarter Overview

Broadridge delivered decent third quarter results, beating the Zacks Consensus Estimate on both the top and bottom lines. The quarter’s adjusted earnings came in at 25 cents per share, which was 6 cents above of our expectation. The quarter’s beat was attributed to higher recurring revenue, partially offset by higher operating expenses and a higher tax rate.

Broadridge reported a 38.4% year-over-year increase in its quarterly revenue, aided by recurring revenues from acquisitions. However, the improvement was partially offset by lower contribution from event-driven mutual fund proxy fee revenues. The Investor Communication Solutions segment posted marginal growth due to dampening of event-driven mutual fund proxy revenues. But the Securities Processing Solutions segment showed decent growth on the strength in new business, offset by the carryover impact of fiscal 2009 client losses and price concessions.

Increased investment in acquisitions, lower event-driven mutual fund proxy revenues and higher operating expenses were responsible for the margin contraction.

Full Year Guidance

For fiscal 2011, Broadridge reiterated its earnings guidance of $1.30 to $1.40 per share. Management expects free cash flow (including costs related to the Penson transaction and the International Business Machines Inc. (IBM) data center services agreement) in the range of $140.0 million to $200.0 million (previously $131.0–$189.0 million).

Agreement of Analysts

Out of the four analysts providing estimates for the fourth quarter and fiscal 2011, none revised estimates in the last seven days. A similar situation was noticed for fiscal 2012 and there were no changes to estimates since the third quarter results.

The analysts expect continued weakness in mutual fund event-driven revenue and associated distribution revenue to lead to lower top-line generation for Broadridge in the coming quarters.

Magnitude of Estimate Revisions

Over the past ninety days, the Zacks Consensus Estimate for the quarter was reduced by a penny to 91 cents. The Zacks Consensus Estimate increased 2 cents to $1.36 for fiscal 2011 and dropped 3 cents for fiscal 2012 in the same time period.

Recommendation

We remain optimistic on Broadridge’s strategic acquisitions and potential product launches. But management’s commentary on lackluster event-driven mutual fund proxy revenue keeps us cautious.

Some analysts are of the opinion that Broadridge has a number of drivers that will benefit earnings over the next two years. They find themselves confident on BR's ability to earn roughly 30 cents per share in 2013 due to its strategic initiatives. The analysts believe revenue could benefit as the company's strategic acquisitions continue to do well.

Stiff competition from HD Supply, DST Systems Inc. (DST) and State Street Corp. (STT) is a concern.

Currently, Broadridge has a Zacks #3 Rank, implying a short-term Hold recommendation.

 
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