DST Systems Inc.
) posted first quarter 2012 adjusted earnings per share (EPS) of
$1.05, inching past the Zacks Consensus Estimate of $1.04. However,
the results were 2.8% lower than $1.08 recorded in the prior-year
Total revenue in the first quarter was $653.2 million, up 10.4%
from $591.7 million in the year-ago quarter. Excluding
out-of-the-pocket reimbursements, consolidated operating revenue
increased 10.8% year over year to $475.9 million, which was above
the Zacks Consensus Estimate of $469.0 million.
Financial Services operating revenues (excluding
out-of-the-pocket reimbursements) increased 9.4% year over year,
primarily owing to broad based improvements in the brokerage,
retirement, healthcare and AWD operating units as well as
significant contribution from the ALPS acquisition (in July 2011).
However, the results were partially offset by lower mutual fund
shareowner processing revenues.
Output Solutions operating revenues increased 13.1%, reflecting
favorable contributions from Newkirk Products, Inc. (acquired in
May 2011) and Lateral Group Limited (acquired in August 2011.
During the quarter, there were four new client commitments from
North America. DST Systems expects full conversion activities
related to these new clients to be completed in the second half of
2012, resulting in revenue growth.
This apart, Investments and Other Segment operating revenues
increased 2.1% year over year to $14.4 million, primarily as a
result of increased rental activities.
During the quarter, total mutual fund shareowner accounts
serviced decreased by 0.2% sequentially to 99.5 million. Registered
accounts and sub-accounts serviced by the company during the
quarter were 82.8 million and 16.7 million, respectively. The rate
of decline moderated from 0.9% in the previous quarter.
Management expects 8 million to 10 million registered accounts
to convert to sub-accounting for 2012.
Total cost and expenses increased 13.6% from the year-earlier
period to $559.1 million. Consolidated operating income was $60.1
million, down 13.3% from $69.3 million in the year-ago quarter. The
margin deceleration was due to weak performance by the Financial
Services segment, partially offset by a favorable margin outcome
from Output Solutions.
Financial Services operating income decreased 17.4% from the
year-ago period to $52.1 million. The decrease was due to higher
costs pertaining to the ALPS acquisition, new business development
and compensation. Output Solutions operating income was $7.2
million, up 30.9% from the year-ago quarter. The improvement was
attributable to increases in the North America operations,
partially offset by higher costs due to Canadian plant expansion
and new client start-up expenses.
Net income attributable to DST shareholders in the quarter was
$55.3 million or $1.22 per share compared with $53.4 million or
$1.14 per share in the year-ago quarter. Excluding the one-time
items included in operating income and non-operating income,
adjusted net income in the quarter came in at $1.05 per share, down
from $1.08 in the year-ago quarter.
DST Systems' balance sheet appears highly leveraged. The company
exited the quarter with $52.0 million in cash and equivalents, up
from $41.0 million reported in the previous quarter, and debt of
$1.36 billion, down from $1.38 billion reported in the previous
Share Repurchases & Dividend
No share buyback was made during the quarter. The company
currently has approximately 44.9 million shares remaining under its
existing share repurchase authorization.
During the quarter, DST paid a cash dividend of 40 cents per
share. The cash dividend was raised by 5 cents per share from the
last dividend paid.
DST Systems is one of the leading global providers of
sophisticated information processing software and products to the
financial services industry, primarily mutual funds. The company
has supplemented internal growth with strategic acquisitions.
The company surpassed the Zacks Consensus Estimates on both the
top and bottom lines. Total revenue improved on strong performances
across the segments.
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 Lateral and New Kirk to provide continued support to Output
Solutions' revenue growth.
We expect the acquisitions to be accretive in the upcoming
quarters. The similar lines of businesses will make it easy for DST
Systems to speed-up integration.
On the other hand, tough competition from
Broadridge Financials Solutions Inc.
Advent Software Inc.
) and a high debt burden remain concerns.
Currently, DST Systems has a Zacks #2 Rank, implying a
short-term Buy recommendation.
ADVENT SOFTWARE (ADVS): Free Stock Analysis
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DST SYSTEMS (DST): Free Stock Analysis Report
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