DST Systems Inc.
) posted second quarter 2013 adjusted earnings per share (EPS) of
$1.04, beating the Zacks Consensus Estimate by a penny. The
results were 35.1% higher than the prior-year quarter.
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Total revenue in the second quarter was $657.1 million, up 3.8%
from $632.8 million in the year-ago quarter. Excluding
out-of-the-pocket reimbursements, consolidated operating revenues
increased 4.2% year over year to $485.1 million, which was above
the Zacks Consensus Estimate of $471.0 million.
Financial Services operating revenues (excluding
out-of-the-pocket reimbursements) increased 3.8% year over year,
primarily owing to broad-based improvements in the DST Brokerage
Solutions, ALPS (acquired in Jul 2011) and DST Retirement
Solutions operating units. However, the results were partially
offset by lower mutual fund shareowner processing revenues.
During the quarter, total mutual fund shareowner accounts
serviced increased 0.7% sequentially to 95.7 million. Registered
accounts and sub-accounts serviced by the company during the
quarter were 73.3 million and 22.4 million, respectively.
Registered accounts dropped marginally while sub-accounts
witnessed growth due to the migration of 0.4 million accounts
from registered accounts to DST's sub-accounting platform and 0.1
million migration from non-DST platform.
Healthcare Services (the new segment was formed by separating DST
Healthcare unit from the Financial Services segment) operating
revenues grew 8.2% year over year to $82.0 million. The
improvement was mainly due to higher pharmacy claims and increase
in Medicare and Medicaid members, network fees and new pharmacy
discount card services.
Customer Communications (previously Output Solutions) operating
revenues increased 2.7% year over year. Contribution from North
America was strong, which was offset by weak contribution from
the U.K. Decreased contribution from U.K. was mainly due to lower
images produced and foreign currency exchange rate movements.
This apart, Investments and Other Segment operating revenues
increased 8.3% year over year to $3.9 million.
Total cost and expenses were $584.4 million, roughly flat with
$581.9 million in the year ago period. Consolidated operating
income was $72.7 million, up 42.8% year over year. Operating
margin was 11.1%, up from 8.0% in the year-ago quarter. Margin
expansion was led by strong operational performances across the
Net income attributable to DST shareholders in the quarter was
$78.5 million or $1.76 per share, down from $144.9 million or
$3.17 per share in the year-ago quarter. Excluding the one-time
items included in operating income and non-operating income,
adjusted earnings in the quarter came in at $1.04 per share, up
from 77 cents in the year-ago quarter.
DST Systems' balance sheet appears highly leveraged. The company
exited the quarter with $177.9 million in cash and equivalents,
up from $120.8 million reported in the previous quarter, and debt
of $951.6 million, down from $1.04 billion reported in the
Share Repurchases & Dividend
During the second quarter, DST Systems bought back 908,000 common
stock for a value of $62.7 million. Also, the company paid a
quarterly dividend of 30 cents a share.
DST's second quarter was decent with both the top and bottom
lines beating the Zacks Consensus Estimate. Segment performances
were modest with synergies from acquired units. Higher
conversions into DST's subaccounting platform were encouraging
but growth in registered accounts continued to lag.
However, we are still of the opinion that, DST Systems' business
volume and massive scale of operation in Financial Services will
attract new customers. Moreover, we expect steady contributions
from the recent acquisitions to support revenue growth.
On the other hand, decreasing organic revenue growth, tough
Broadridge Financials Solutions Inc.
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), and a high debt burden remain concerns. But continuous share
buybacks and dividend payments are enough to boost shareholder
Currently, DST Systems has a Zacks Rank #2 (Buy).