Lender Processing Services Inc. (LPS) reported second quarter 2010 adjusted earnings per share of 89 cents that surpassed the Zacks Consensus Estimate by a penny. Results were also well ahead of the prior-year quarter’s earnings of 83 cents. Adjusted net earnings in the quarter included an adjustment for purchase price amortization of 4 cents per share. On a GAAP basis, earnings per share were 85 cents, up from 78 cents recorded in year-earlier quarter.
However, Lender Processing recorded its consolidated revenues of $599.1 million in the quarter under review, reflecting a drop of 2.3% year over year due to a challenging environment in both the origination and default markets.
Operating income of $148.4 million in the quarter moved up 3.3% year over year. Operating margin was 24.8%, 140 basis points higher than the comparable quarter last year.
The Technology, Data, and Analytics segment (TD&A)
Second-quarter revenues for the TD&A segment were $185.2 million, up 7.7% year over year. Mortgage processing revenues of $102.4 million climbed 14.3% year over year, primarily attributable to higher activity-based fees as well as professional services and license revenues. Other TD&A revenues marginally grew by 0.7% year over year to $82.9 million. Operating income for the segment was $64.8 million, up 17.6% year over year. The increase in the segment’s operating income was driven by higher contributions from Mortgage Processing, partially offset by lower contributions from the desktop business.
Loan Transaction Services (LTS)
Both revenues and operating income for the LTS segment plunged 7.3% year over year to $415.5 million and $101.6 million, respectively. The negative variance in the segment’s revenues was due to a respective drop of 5.4% and 8.2% year over year in revenues from loan facilitation and default services. In the reported quarter, loan facilitation and default services recorded revenues of $140.5 million and $275.0 million, respectively. The decline in the segment’s operating margin resulted from lower contributions from default services, partly offset by higher income from loan facilitation.
Financial Position
At the end of June 30, 2010, cash balance of the company was $108.6 million while outstanding debt was $1.18 billion.
Outlook
For the third quarter, management expects adjusted earnings per share to be within the range of 88 cents to 90 cents.
For full-year 2010, management expects adjusted earnings to be in the range of $3.49 to $3.56 per share. For full-year 2010, management increased its revenue guidance to a range of 3% to 6% year over year, driven by the modest outlook on the origination and default markets for the remainder of the year.
Although Lender Processing has a solid market presence, we believe its high debt position and weakness in the origination-oriented business are causes for concern. We currently have Zacks #4 Rank on Lender Processing, which translates into a short-term Sell rating.
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