DST Systems Inc.
) posted first-quarter 2014 non-GAAP earnings of $1.12 per share
beating the Zacks Consensus Estimate of $1.08. On a
year-over-year basis, earnings per share improved 13.1% aided by
higher revenues and higher client additions.
Revenues in the first quarter were $683.8 million, up a marginal
0.2% from the year-ago quarter. Excluding out-of-the-pocket
reimbursements, consolidated operating revenues increased 2.0%
year over year to $505.2 million, which beat the Zacks Consensus
Estimate of $502.0 million.
Financial Services operating revenues (excluding
out-of-the-pocket reimbursements) increased 2.7% year over year
to $244.3 million, primarily driven by revenue growth at ALPS and
DST Brokerage Solutions. Moreover, revenues from ALPS and DST
Brokerage Solutions were positively aided by new client
conversions and better customer relationships.
Healthcare Services operating revenues grew 15.0% year over year
to $92.0 million. The improvement was mainly due to higher
pharmacy claims and increase in Medicare and Medicaid members,
expansion of existing clients and new pharmacy discount card
Customer Communications (previously Output Solutions) operating
revenues declined a modest 4.5% year over year to $165.4 million.
Contribution from North America remained weak due to client loss.
Moreover, adverse foreign currency impacts from the Canadian
business also affected the segment.
Apart from this, Investments and Other Segment operating revenues
decreased 12.5% year over year to $3.5 million.
Cost and expenses were up 1.6% from the year-ago quarter to
$583.7 million, primarily due to increased investments for new
business expansion. However, as a percentage of revenues, costs
and expenses were down 49 basis points (bps) on a year-over-year
basis. This resulted in an expansion in operating margin of the
DST reported net income (non-GAAP) of $47.5 million or $1.12 per
share compared with $45.00 million or 99 cents reported in the
DST Systems' balance sheet appears highly leveraged. The company
exited the quarter with $140.0 million in cash and equivalents,
up from $62.5 million reported in the previous quarter, and debt
(including current portion) of $669.3 million, down from $683
million reported in the previous quarter.
Share Repurchases & Dividend
During the first quarter, DST Systems did not repurchase any
shares but paid dividends of 30 cents per share.
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DST reported better-than-expected first quarter results with both
the top and bottom lines surpassing the Zacks Consensus Estimate.
Moreover, the quarter's results increased on a year-over-year
basis. Higher number of client additions, better customer
relationships and growth at ALPS and DST Brokerage Solutions
Segment performances were also modest with synergies from
acquired units. Higher conversions into DST's sub-accounting
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.
Advent Software Inc.
), and a high debt burden remain concerns. However, continuous
share buybacks and dividend payments are enough to boost
Currently, DST Systems carries a Zacks Rank #3 (Hold).