Broadridge Financial Solutions Inc. (BR) reported fourth-quarter 2010 earnings per share of 76 cents, down from 83 cents in the prior-year quarter and below the Zacks Consensus Estimate of 84 cents.
Total revenue in the fourth quarter was $750.5 million, up 5.0% from $716.3 million in the year-ago quarter, but below the Zacks Consensus Estimate of $759.0 million. The increase in revenues may be attributed to the positive effect of currency translation and higher contributions from fee revenues, which were driven primarily by event-driven mutual fund proxy revenues. Higher contributions from the Morgan Stanley Smith Barney (“MSSB”) deal and acquisitions also helped. During the second quarter of 2010, Broadridge signed an agreement to provide customer communication services to MSSB.
Segment Revenues
The Investor Communication Solutions segment generated $609.9 million in revenues, up 4.0% from $587.0 million in the prior-year quarter. The increase was mainly due to event-driven mutual fund proxies, the MSSB transaction and acquisitions.
The Securities Processing Solutions segment reported revenues of $138.4 million, up 1.0% from $136.7 million in the prior-year quarter. The increase was due to strength in new business, which was offset by the carryover impact of fiscal 2009 client losses and price concessions.
Operating Results
Total expenses in the quarter increased 6.6% year over year to $567.8 million. Pre-tax income in the quarter was $182.7 million, almost flat with $183.7 million in the year-earlier quarter. Pre-tax margin slipped 130 basis points year over year to 24.3%.
Net income from continuing operations in the quarter was $116.2 million, or 84 cents per diluted share, up from $115.8 million or 82 cents in the year-earlier quarter. However, net income (including discontinued operations) was $105.1 million, or 76 cents per diluted share compared with $116.9 million or 83 cents in the year-earlier quarter.
Balance Sheet
Broadridge exited the quarter with cash and cash equivalents of $412.6 million, up from $173.4 million in the prior-year quarter. Receivables declined $26.7 million from the year-earlier quarter to $354.3 million. Long-term debt was $324.1 million, unchanged from the prior-year quarter.
Share Repurchase & Dividend Payment
During the recently concluded quarter, Broadridge repurchased 7.1 million common shares at an average price of $19.48 per share. At quarter end, the company had approximately 6.3 million shares remaining under its current authorization. Moreover, Broadridge’s Board of Directors authorized an additional buyback of up to 10 million outstanding common shares.
During the quarter, Broadridge announced a quarterly dividend of $0.15 per share to stockholders of record on September 15, 2010. The dividend will be paid on October 1, 2010.
As per the board’s recommendation, Broadridge increased the annual dividend amount to $0.60 per share, up approximately 7% from $0.56 per share.
Guidance
For FY11, Broadridge expects revenues to grow in the range of 1% to 4% annually. Pre-tax margin is expected to range between 14.8% and 15.2%. The company expects its earnings per share in the range of $1.55 to $1.65 and weighted-average shares outstanding in the range of approximately 128 million to 130 million.
Broadridge expects earnings per share to remain muted during the first half of fiscal 2011 due to the impact of client losses witnessed in 2009, following the divestiture of its subsidiary, Ridge Clearing & Outsourcing Solutions Inc. to Penson Financial Services Inc., a subsidiary of Penson Worldwide Inc. (PNSN). Additionally, the closing of two significant mutual fund proxy jobs will act as a negative catalyst.
Broadridge also expects free cash flow in the range of approximately $170 million to $220 million in FY11. Free cash flow will include costs related to the Penson transaction and the IBM data center services agreement.
Our Take
We believe that the sale of the Clearing business will enable Broadridge to focus solely on revenue opportunities associated with securities processing and outsourcing services businesses. Moreover, we remain optimistic on Broadridge’s strategic acquisitions and potential product launches.
However, we believe that weaker market activity during the recession continues to impact the company’s performance, which can be well inferred from the dull fiscal 2011 guidance. Additionally, Broadridge faces significant competition from companies such as HD Supply, DST Systems Inc. (DST) and State Street Corp. (STT), which have increased pricing pressures for the company.
We believe that share prices will remain depressed until there is a positive turn in investor sentiment toward the securities markets. Therefore, we have a short-term Zacks #5 Rank (‘strong sell’) on Broadridge.
BROADRIDGE FINL (BR): Free Stock Analysis Report
DST SYSTEMS (DST): Free Stock Analysis Report
PENSON WORLDWD (PNSN): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
Zacks Investment Research
