Broadridge Financial Solutions Inc.
) reported adjusted earnings of 25 cents in the second quarter of
2014, which lagged the Zacks Consensus Estimate of 28 cents.
Nonetheless, reported earnings improved 44.7% from the year-ago
quarter primarily aided by margin expansions and share
Broadridge's second-quarter revenues increased 5.6% on a
year-over-year basis to $520.6 million but lagged the Zacks
Consensus Estimate of $522.0 million. Year-over-year revenues
were driven by recurring fee revenues, which also include
contribution from Net New Business.
Moreover, revenues from Investor Communication Solutions
segment (66% of total revenue) increased 5.8% from the year-ago
quarter to $345.9 million. The improvement was attributable to
higher recurring revenues from new business and higher internal
growth from market based activities.
The Securities Processing Solutions segment (34% of total
revenue) reported revenues of $174.1 million, up 6.3% from the
year-ago quarter. The increase was driven by strength in new
business and higher equity trade volumes per day.
Apart from this, the company witnessed higher demand for its
Fluent digital service, which aims at simplifying communications
between financial services firms and their clients.
Broadridge's gross margins expanded 462 basis points on a
year-over-year basis to 26.0% primarily due to higher revenue
base. The company's earnings before interests and taxes (EBIT)
margins also expanded from 6.9% to 9.3% during the same period of
time aided by higher revenues and improved productivity.
The company reported adjusted net income of $31.2 million or
25 cents which increased from $21.8 million or 17 cents reported
in the year-ago quarter.
Broadridge exited the quarter with cash and cash equivalents
of $240.3 million, up from $183.1 million in the previous
quarter. Long-term debt was $524.1 million compared to $524.0
million in the earlier quarter.
During the quarter, Broadridge repurchased 0.1 million shares
at $38.82 per share and declared approximately 21 cents per share
Fiscal 2014 Guidance
Broadridge raised fiscal 2014 guidance and now expects fiscal
2014 revenue growth of 4% to 5% (previous 2.0% to 4.0%) and
recurring revenue growth of 7% to 8% (previous 5.0% to 7.0%). The
company expects recurring revenues from closed sales to be the
key revenue growth driver. Recurring revenues from closed sales
are forecast in the range of $110.0 to $150.0 million. Client
retention rate is expected to be 98.0%.
Non-GAAP margin is now expected between 16.4% and 17.0% up
from 15.6% and 16.1%. Adjusted earnings per share are also
expected in the range of $2.15-$2.25, up from the previous guided
range of $2.00-$2.10. Management also expects adjusted free cash
flow within $275 to $325 million (previous $250.0-$300.0
Apart from this, Broadridge is positive about the ramp up of
its post-trade processing service and digital communication
service, which have strengthened the company's deal pipeline.
Although Broadridge's second-quarter results lagged the Zacks
Consensus Estimate but the year-over-year comparisons were
favorable. The mutual fund proxy business 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. Moreover, buoyed by these factors the
company raised its fiscal 2014 guidance.
We remain optimistic on Broadridge's strategic acquisitions,
product launches, share repurchase program and dividend paying
initiatives. We also believe Broadridge's close association with
) will be beneficial in the long term. However, significant
competition from companies such as
Barrett Business Services
DST Systems Inc.
) has intensified pricing pressure for the company.
Currently, Broadridge has a Zacks Rank #2 (Buy).
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