Broadridge Financial Solutions Inc.
's (
BR
) second-quarter fiscal 2012 adjusted earnings per share (
EPS
) of 12 cents were on par with the Zacks Consensus Estimate and
better than 8 cents earned in the prior-year quarter.
Revenues
Total revenue in the second quarter was $479.8 million, up 8.5%
from $442.3 million a year ago. The revenue figure missed the Zacks
Consensus Estimate of $497.0 million. The improvement was buoyed by
an increase in recurring revenues from acquisitions, partially
offset by lower contribution from event-driven mutual fund proxy
fee 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 agreement with
Penson Worldwide Inc.
(
PNSN
) also aided the revenue growth.
Broadridge managed to sustain a 99% client retention rate.
Segment Revenues
The Investor Communication Solutions segment generated $316.8
million in revenues, up 7.7% from $294.1 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.
The Securities Processing Solutions segment reported revenues of
$161.1 million, up 10.3% from $146.1 million in the prior-year
quarter. The increase was attributable to the strength in new
business, Penson outsourcing services agreement and the City
Networks Ltd. acquisition.
Operating Results
Total expenses in the quarter crept up 10.2% year over year to
$469.2 million. Reported pre-tax income was $10.6 million, down
from $16.5 million in the year-earlier quarter. Pre-tax margin
dropped 80 basis points year over year to 1.4%.
Net income from continuing operations decreased 35.8% year over
year to $6.8 million. Earnings per share in the quarter fell 35.2%
to 5 cents from 8 cents in the year-ago quarter. Excluding the
effect of
International Business Machines Inc.
(
IBM
) migration costs and impairment charge on investment in the common
stock of Penson Worldwide, adjusted net income was $15.4 million or
12 cents, compared to $10.6 million or 8 cents in the year-ago
quarter. 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 terms, 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.
(
ADP
).
Balance Sheet
Broadridge exited the quarter with cash and cash equivalents of
$238.2 million, down from $252.8 million in the prior quarter.
Receivables decreased 9.7% from the previous quarter to $296.6
million. Long-term debt increased $30.0 million sequentially to
$594.3 million.
Guidance
For fiscal 2012, Broadridge expects revenue growth of 8.0% to
9.0% (previously 9.0% to 11.0%), 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 $1.29 and $1.39 (previously $1.34-$1.44). Excluding the
effect of IBM migration costs, adjusted EPS is expected in the
range of $1.50-$1.60. Management also expects adjusted free cash
flow in the range of $223.0 million to $260.0 million.
Moreover, management still thinks that contribution from the
event-driven mutual fund proxy revenues will be negligible.
Our Take
Broadridge Financial posted a modest second quarter by matching
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
higher amortization charge.
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,
DST Systems Inc.
(
DST
) and
State Street Corp.
(
STT
), 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 #3 Rank, implying a short-term
Hold recommendation.
AUTOMATIC DATA (
ADP
): 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
PENSON WORLDWD (PNSN): Free Stock Analysis
Report
STATE ST CORP (STT): Free Stock Analysis Report
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