DLLR Dfc Global Corp (MM)

DFC Global Corp. (DLLR) reported operating earnings of 50 cents per share for the fiscal first quarter 2012, ending September 30, ahead of the Zacks Consensus Estimate of 48 cents per share but dramatically higher than 32 cents earned in the year-ago quarter.

The operating results exclude non-cash interest expense resulting from the adoption of ASC 470-20, unrealized foreign exchange loss, non-cash impact of hedge ineffectiveness, cross-currency swap amortization, reserve for litigation settlements, acquisition costs expensed and loss on store closings.

Including these charges, GAAP net loss was 5 cents per share in the reported quarter, compared with earnings of 33 cents in the prior-year quarter.

DFC Global continues to deliver strong numbers on the heels of solid performance at its core business units, successful implementation of business diversification strategy and strategic investments.

Operational Update

Total revenue for the quarter surged 50.2% year over year to $261.6 million, higher than the Zacks Consensus Estimate of $241 million. Higher consumer lending revenue (shooting 70.6% year over year) and pawn service fees and sales increasing more than two fold largely aided the improvement.

Additionally, money transfer fees grew 33% year over year to $9.6 million, purchased gold sales revenue increased 43% to $15.9 million and check cashing revenue improved 2.5% year over year to $36.2 million. However, other revenue declined 0.9% to $22.1 million from the year-ago quarter.

Operating expenses shot up 56% year over year to $165.3 million, primarily attributable to salaries and benefits that increased 32% year over year to $53.8 million. Alongside, provision for loan losses and advertising cost increased more than two fold.

DFC Global’s operating profit jumped 41% year over year to $96.3 million.

The company also reported adjusted EBITDA of $74.0 million in the reported quarter, which increased 51% year over year.

Evaluation of Capital and Balance Sheet

At the end of September 30, 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. Thus, DFC Global has no immediate debt principal repayment obligations. The first potential put date is December 2012 for $44.8 million of U.S. senior convertible notes.

As of September 30, 2011, DFC Global had drawn $134.6 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 257 million and EUR 16.9 million of its total SEK 325.0 million and EUR 17.5 million credit facilities in Scandinavia, to fund its working capital needs.

Outlook for Fiscal 2012 Reaffirmed

Adjusted EBITDA is projected between $295.0 million and $310.0 million.

The operating earnings projection is in the range of $2.00–$2.15 per share.

The guidance considers an expected effective income tax rate from operations of 34%.

We maintain our Outperform recommendation on DFC Global. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward 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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