DST Systems Inc.
) posted fourth-quarter 2013 non-GAAP earnings of $1.34 per share
beating the Zacks Consensus Estimate of $1.28. On a
year-over-year basis, earnings per share improved 12.6%.
Revenues in the fourth quarter were $667.3 million, up 2.7%
from the year-ago quarter. Excluding out-of-the-pocket
reimbursements, consolidated operating revenues increased 1.3%
year over year to $500.1 million, which beat the Zacks Consensus
Estimate of $496.0 million.
Financial Services operating revenues (excluding
out-of-the-pocket reimbursements) increased 2.8% year over year
to $258.0 million, primarily driven by revenue growth at ALPS.
Moreover, revenues from DST Brokerage Solutions and BlueDoor
partially offset the lower revenues from license and professional
service at DST Global Solutions.
Healthcare Services operating revenues grew 15.1% year over
year to $90.6 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 declined a modest 2.6% year over year to
$162.0 million. Contribution from North America and the U.K.
remained weak due to client loss.
Apart from this, Investments and Other Segment operating
revenues decreased 2.8% year over year to $13.9 million due to
lower rental income.
Cost and expenses were up 0.4% from the year-ago quarter to
$411.5 million. Moreover, as a percentage of revenues, costs and
expenses were down 191 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 $57.0 million or $1.34
per share compared to $55.00 million or $1.19 per share reported
in the year-ago quarter.
DST Systems' balance sheet appears highly leveraged. The
company exited the quarter with $62.5 million in cash and
equivalents, down from $129.9 million reported in the previous
quarter, and debt (including current portion) of $683 million,
down from $833.4 billion reported in the previous quarter.
Share Repurchases & Dividend
During the fourth quarter, DST Systems repurchased shares
worth $70.8 million and paid dividends of 30 cents per share.
Management also authorized a $250 million share buyback plan.
DST's fourth quarter was decent with both the top- and bottom
lines increasing on a year-over-year basis. Segment performances
were 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
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).
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