Broadridge Financial Solutions Inc
) fourth-quarter fiscal 2012 adjusted earnings per share (EPS) of
$1.00 were above the Zacks Consensus Estimate of 98 cents.
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Total revenue in the fourth quarter was $800.3 million, up 3.8%
from $776.1 million a year ago. The revenue figure missed the Zacks
Consensus Estimate of $815.0 million. The year-over-year
improvement was buoyed by a 6.0% increase in recurring revenues,
improved contribution from event-driven mutual fund, partially
offset by lower distribution 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
Penson Worldwide Inc.
) also aided revenue growth.
Broadridge managed to sustain a 99% client retention rate.
The Investor Communication Solutions segment generated $630.2
million in revenues, up 2.2% from $368.9 million in the prior-year
quarter. The increase was attributable to higher recurring revenues
from net new business, revenue gains from acquisitions, and higher
event-driven mutual fund proxies, which was significantly offset by
a decline in distribution revenues.
The Securities Processing Solutions segment reported revenues of
$166.7 million, up 9.7% from $151.9 million in the prior-year
quarter. The increase was attributable to the strength in new
business, Penson outsourcing services agreement and the Paladyne
Systems Inc. acquisition.
Total expenses in the quarter crept up 11.8% year over year to
$665.0 million. Reported pre-tax income was $135.3 million, down
from $181.2 million in the year-earlier quarter. Pre-tax margin
dropped 670 basis points year over year to 17.4%.
GAAP net income from continuing operations decreased 27.7% year
over year to $83.4 million. Earnings per share in the quarter fell
28.1% to 65 cents from 91 cents in the year-ago quarter. Excluding
the effect of
International Business Machines Inc.
) migration costs; impairment charge on investment in the common
stock of Penson Worldwide and restructuring charges, adjusted net
income was $127.7 million or $1.00 per share. 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, 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.
Broadridge exited the quarter with cash and cash equivalents of
$320.5 million, up from $218.8 million in the prior quarter.
Receivables increased 25.0% from the previous quarter to $296.6
million. Long-term debt decreased $69.9 million sequentially to
Share Repurchase & Dividend Payout
During the quarter, Broadridge bought back 1.7 million of its
common stock at an average price of $23.06 per share. Apart from
this, the board also approved another share repurchase plan to buy
4 million of common stock. With this approval, the company has 10
million of common stock available for repurchase.
The company also declared a quarterly dividend of 18 cents per
share, which is scheduled to be paid on October 1, 2012 to
shareholders of record as of September 14, 2012. The dividend per
share increased 12.5% from 16 cents paid earlier. Notably, the
company started paying dividend of 6 cents from July 2007.
Management still thinks that contribution from the event-driven
mutual fund proxy revenues will be negligible. Moreover, the
company expects lower distribution revenues and higher Penson
For fiscal 2013, Broadridge expects revenue growth of 3.0% to 4.0%,
and recurring revenue growth of 4.0% to 7.0%. The company expects
recurring revenue closed sales to be the key driver for revenue
growth. Recurring revenue closed sales are forecast in the range of
$110.0 million to $150.0 million.
GAAP pretax margin is expected in the range of 13.8% to 14.4%,
while non-GAAP margin is expected between 14.2% and 14.8%. Earnings
per share are expected between $1.60 and $1.70. However, excluding
the effect of Penson charges, adjusted EPS is still expected in the
range of $1.65-$1.75. Management also expects adjusted free cash
flow in the range of $200.0 million to $250.0 million.
Broadridge Financial posted a mixed-bag fourth quarter by beating
the Zacks Consensus Estimate on the bottom line, but missing the
top line. Broadridge has provided cautious revenue and earnings
guidance for fiscal 2013 due to flat event-driven and distribution
revenues and higher charges.
The company believes that outsourcing will be a key driver for its
growth and we believe that Broadridge seems to be in a good
position to make such deals. Broadridge entered into a 10-year
Master Services Agreement with Apex, under which Apex will
outsource its securities processing and back office support
services to Broadridge.
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 2013 guidance. Management expects a
weaker trend in event-driven mutual fund proxy revenue.
Additionally, Broadridge faces significant competition from
companies such as HD Supply and
DST Systems Inc.
), 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 #4 Rank, implying a short-term