DST Systems Inc.
(
DST
) posted fourth quarter 2011 adjusted earnings per share (
EPS
) of 91 cents, lagging the Zacks Consensus Estimate of 96
cents.
Revenue
Total revenue in the fourth quarter was $623.4 million, up 7.4%
from $580.7 million in the year-ago quarter. Excluding
out-of-the-pocket reimbursements, consolidated operating revenue
increased 7.6% year over year to $457.3 million, which was above
the Zacks Consensus Estimate of $431.0 million.
Financial Services operating revenues (excluding
out-of-the-pocket reimbursements) increased 1.2% year over year,
primarily owing to higher DST Global Solutions professional
services revenues and significant contribution from the ALPS
acquisition, partially offset by lower shareowner processing
revenues and DST HealthCare revenues.
Output Solutions operating revenues increased 20.4%, reflecting
the positive impact of Innovative Output Solutions Ltd.'s
acquisition of dsicmm Group Limited in July 2010. This apart, DST's
acquisition of Newkirk Products, Inc. in May 2011 and IOS's
acquisition of Lateral Group Limited in August 2011, also
contributed to the growth in operating revenue.
This apart, Investments and Other Segment operating revenues
increased 2.9% year over year to $14.2 million, primarily as a
result of higher rental activities.
Operating Results
Total cost and expenses increased 8.4% from the year-earlier
period to $565.0 million. Consolidated operating income was $58.4
million, down 2.0% from $59.6 million in the year-ago quarter.
Financial Services operating income decreased 24.9% from the
year-ago period to $53.3 million. The decrease was due to lower
mutual fund shareowner processing revenues, higher costs due to new
business development and compensation. However, this was partially
offset by lower employee healthcare and retirement benefit costs.
Output Solutions operating income was $1.9 million, as against
operating loss of $0.8 million in the year-ago quarter. The
improvement was attributable to increases in the North America
operations and lower employee healthcare and retirement benefit
costs.
Net income attributable to DST shareholders in the quarter was
$41.8 million or 94 cents per share compared with $93.3 million or
$2.00 per share in the year-ago quarter. Excluding the one-time
items, adjusted net income in the quarter came in at 91 cents per
share compared with 85 cents in the year-ago quarter.
Balance Sheet
DST Systems' balance sheet appears highly leveraged. The company
exited the quarter with $41.0 million in cash and equivalents,
significantly down from $90.0 million reported in the previous
quarter, and debt of $1.38 billion, up from $1.27 billion reported
in the previous quarter.
Share Repurchases & Dividend
The company repurchased 130,000 shares for $5.9 million or
approximately $45.45 per share. DST's Board of Directors increased
its share repurchase authorization by 2.0 million shares. The
authorization will expire on December 31, 2013. The company
currently has approximately 2,050,000 shares remaining under its
existing share repurchase authorization.
During the quarter, DST paid a cash dividend of 35 cents per
share.
Conclusion
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's bottom line missed our expectations. However,
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 contribution from
dsicmm 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.
(
BR
),
Advent Software Inc.
(
ADVS
) and a high debt burden remain concerns.
Currently, DST Systems has a Zacks #3 Rank, implying a
short-term Hold recommendation.
ADVENT SOFTWARE (
ADVS
): Free Stock Analysis Report
BROADRIDGE FINL (
BR
): Free Stock Analysis Report
DST SYSTEMS (
DST
): Free Stock Analysis Report
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