Broadridge Outperforms Again - Analyst Blog
August 12 2011 - 11:15AM
Zacks
Broadridge Financial
Solutions Inc.’s (BR) fourth-quarter fiscal 2011 adjusted
earnings per share of 94 cents beat the Zacks Consensus Estimate of
91 cents and improved from 84 cents earned in the prior-year
quarter. Higher recurring revenue prompted the outperformance,
partially offset by higher operating expenses and tax rate.
Revenues
Total revenue in the fourth quarter
was $776.1 million, up 3.4% from $750.5 million in the year-ago
quarter and ahead of the Zacks Consensus Estimate of $773.0
million. The improvement was driven 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, according to Broadridge. Positive currency
translation, net new businesses 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 $616.6 million in revenues, up 1.1% from $609.9
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 $151.9 million, up 94.7% from $78.0
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, offset by the carryover
impact of fiscal 2009 client losses and price concessions.
Operating
Results
Total expenses in the quarter crept
up 4.8% year over year to $594.9 million. Pre-tax income was $181.2
million, slightly down from $182.7 million in the year-earlier
quarter. Pre-tax margin fell 100 basis points year over year to
23.3%. Increased investment in acquisitions and lower event-driven
mutual fund proxy revenues were responsible for the margin
contraction.
Net income from continuing
operations decreased 0.8% year over year to $115.3 million.
Earnings per share in the quarter rose 8.3% to 91 cents from 84
cents in the year-ago quarter. Excluding the effect of
International Business Machines Inc. (IBM)
migration costs, adjusted net income was $119.3 million or 94
cents, compared to $116.2 million or 84 cents in the year-ago
quarter. This cost for migration to IBM’s platform is due to an
information technology services agreement signed between the two
companies on 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, Share
Repurchase & Dividend
Broadridge exited the quarter with
cash and cash equivalents of $241.5 million, up from $151.3 million
in the prior quarter. Receivables increased 2.9% from the previous
quarter to $406.6 million. Long-term debt remained roughly flat
sequentially at $124.3 million.
During fiscal 2011, Broadridge
repurchased 8.7 million common shares at an average price of
$21.83. Approximately 7.6 million shares remain available under the
company's current stock repurchase plan.
The company's board of directors
declared a quarterly dividend of 16 cents per share payable on
October 3, 2011 to stockholders of record as of September
15. The annual dividend amount was increased approximately 7% from
60 cents per share to 64 cents per share, subject to the board’s
discretion.
Guidance
For fiscal 2012, Broadridge expects
revenue growth of 8.0% to 10.0%, 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
at $1.34 to $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 $108.0 million
to $195.0 million.
Moreover, management still thinks
that contribution from the event-driven mutual fund proxy revenues
will be negligible. But it believes that the situation could be
better during the later half of the fiscal year.
Our Take
Broadridge Financial posted a decent
fourth quarter and surpassed the Zacks Consensus Estimates on both
top and bottom lines. We believe that the sale of the Clearing
business will enable Broadridge to focus solely on revenue
opportunities associated with securities processing and outsourcing
services. Moreover, we remain optimistic on Broadridge’s strategic
acquisitions and potential product launches.
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 increased pricing pressure for the
company.
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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