Broadridge Beats Q4 Earnings on Higher Revs - Analyst Blog


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Broadridge Financial Solutions Inc. ( BR ) posted fourth-quarter fiscal 2013 adjusted earnings per share (EPS) of $1.15, beating the Zacks Consensus Estimate of $1.08 by a wide margin.


Total revenue in the fourth quarter was $865.1 million, up 8.1% from $800.3 million in the year-ago quarter and 5.4% from the Zacks Consensus Estimate. The year-over-year improvement was supported by recurring revenues of approximately $23.0 million, event-driven fee revenues of $18.0 million and distribution revenues of $26.0 million.

Better-than-expected revenues resulted from Broadridge's solid closed sales, mainly on account of a significant client win for its new post-trade processing solution. The solution, which was developed in association with consulting and outsourcing solutions provider Accenture plc ( ACN ), was embraced by the Corporate & Investment Banking division of Societe Generale Group, a leading French banking and financial services company. Apart from this, the company also witnessed higher demand for its Fluent digital service, which aims at simplifying communications between financial services firms and their clients.

Segment Revenues

The Investor Communication Solutions segment generated $689.7 million in revenues, up 9.4% from $630.2 million in the prior-year quarter. The increase was attributable to higher recurring revenues from new business, revenue gains from acquisitions, and higher distribution revenues.

The Securities Processing Solutions segment reported revenues of $173.2 million, up 3.9% from $166.7 million in the prior-year quarter. The increase was driven by strength in new business and synergies from the acquisition of Paladyne (in Sep 2011).

Operating Results

Total expenses in the quarter decreased 0.3% year over year to $662.9 million. Reported pre-tax income was $202.2 million, up 49.4% from the year-ago quarter. Pre-tax margin grew 810 basis points year over year to 26.1%.

GAAP net income from continuing operations increased 61.4% year over year to $134.6 million. Earnings per share in the quarter grew 66.3% to $1.09 from 65 cents in the year-ago quarter. The significant increase in earnings from the prior-year figures was due to the impact of the Penson impairment charge and International Business Machines Corp. 's ( IBM ) migration costs in the prior year.

The cost of migrating to IBM's platform follows an information technology services agreement signed between the two companies in Mar 2010. As 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.

Excluding the effect of acquisition amortization and other costs, restructuring and impairment charges, adjusted net income was $142.4 million or $1.15 per share compared with $130.6 million or $1.02 in the year-ago quarter.

Balance Sheet

Broadridge exited the quarter with cash and cash equivalents of $266.0 million, up from $182.2 million in the prior quarter. Receivables increased 7.3% from the previous quarter to $442.4 million. Long-term debt remained sequentially unchanged at $524.5 million.

Share Buyback & Dividend Raised

During the quarter, Broadridge bought back 3.3 million shares at $26.85 per share. For the full year, the company repurchased a total of 9 million shares at an average price of $24.52 a share. It has roughly 7 million shares remaining under the ongoing authorization plan.

Apart from this, Broadridge announced a 17.0% hike in its quarterly dividend pay. The company will now pay a dividend of 21 cents a share, instead of 18 cents a share paid previously. This is the company's sixth dividend hike since 2008, which reflects solid free cash flow generation.

Fiscal 2014 Guidance

For fiscal 2014, Broadridge expects revenue growth of 2.0% to 4.0% and recurring revenue growth of 5.0% to 7.0%. The company expects recurring revenue closed sales to be the key driver of revenue growth. Recurring revenue closed sales are forecast in the range of $110.0 million to $150.0 million. Client retention rate is expected to be 98.0%.

GAAP pretax margin is expected in the range of 14.8% to 15.3% while non-GAAP margin is expected between 15.6% and 16.1%. GAAP earnings per share are expected between $1.89 and $1.99. However, excluding the effect of Penson charges, adjusted EPS is still expected in the range of $2.00-$2.10. Management also expects adjusted free cash flow in the range of $250.0 million to $300.0 million.

Apart from this, Broadridge is positive over the ramp of its post-trade processing service and digital communication service, which have strengthened the company's deal pipeline.

Our Take

Broadridge's fourth quarter results were impressive as both the top and bottom lines surpassed the Zacks Consensus Estimate. The mutual fund proxy business, which is unpredictable, has done well this quarter and boosted event-driven fee revenues. Also, cost reduction initiatives and solid growth in net new businesses were the quarter's positive.

We remain optimistic on Broadridge's strategic acquisitions, new product launches, share repurchase program and dividend hike. We also believe that its close association with Accenture will create long-term opportunities for Broadridge. But significant competition from companies such as HD Supply and DST Systems Inc. ( DST ) has intensified pricing pressure for the company.

Currently, Broadridge has a Zacks Rank #3 (Hold).

ACCENTURE PLC (ACN): 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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
More Headlines for: ACN , BR , DST , EPS , IBM

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