Broadridge Financial Solutions Inc.
) third-quarter fiscal 2012 adjusted earnings per share (EPS) of 28
cents were a penny above the Zacks Consensus Estimate of 27
Total revenue in the third quarter was $547.0 million, up 3.8%
from $527.1 million a year ago. The revenue figure missed the Zacks
Consensus Estimate of $562.0 million. The improvement was buoyed by
a 9.0% increase in recurring revenues from acquisitions, partially
offset by lower contribution from event-driven mutual fund proxy
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 agreement with
Penson Worldwide Inc.
) also aided the revenue growth.
Broadridge managed to sustain a 99% client retention rate.
The Investor Communication Solutions segment generated $374.0
million in revenues, up 1.4% from $368.9 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 as a result of
lower mutual fund activity.
The Securities Processing Solutions segment reported revenues of
$169.3 million, up 10.0% from $153.9 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 8.9% year over year to
$518.2 million. Reported pre-tax income was $28.8 million, down
from $51.1 million in the year-earlier quarter. Pre-tax margin
dropped 310 basis points year over year to 3.7%.
GAAP net income from continuing operations decreased 44.5% year
over year to $18.1 million. Earnings per share in the quarter fell
44.6% to 14 cents from 25 cents in the year-ago quarter. Excluding
the effect of
International Business Machines Inc.
) migration costs and impairment charge on investment in the common
stock of Penson Worldwide, adjusted net income was $36.0 million or
28 cents. 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
$218.8 million, down from $238.2 million in the prior quarter.
Receivables increased 31.0% from the previous quarter to $296.6
million. Long-term debt increased $30.0 million sequentially to
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
Impairment charges. Keeping this in view, Broadridge lowered its
fiscal 2012 guidance.
For fiscal 2012, Broadridge expects revenue growth of 7.0% to
8.0% (previously 8.0% to 9.0%), 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
between $1.18 and $1.28 (previously $1.29-$1.39). However,
excluding the effect of IBM migration costs, adjusted EPS is still
expected in the range of $1.50-$1.60. Management also expects
adjusted free cash flow in the range of $210.0 million to $260.0
Broadridge Financial posted a mixed-bag third quarter by beating
the Zacks Consensus Estimate on the bottom line, but missing the
top line. Broadridge has lowered its revenue and GAAP earnings
guidance due to lower-than-expected event-driven revenues and
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 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
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